Tesla cuts 7% of its workforce, saying there’s a ‘very difficult’ road ahead

Tesla is cutting its full-time staff headcount by approximately 7 percent, as it looks to ramp up production of its Model 3 sedans, CEO Elon Musk said Friday.

The job cuts come on the back of various cost-cutting measures the company has made of late, as it looks to boost margins and expand profitability.

Tesla shares fell almost 6 percent in premarket trade following the news.

“Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months,” Musk said in an email that was sent to Tesla employees.

“Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity, but succeeding in our mission is essential to ensure that the future is good, so we must do everything we can to advance the cause,” he added.

Earlier this week, the company discontinued the cheapest versions of its Model S sedans and Model X SUVs. And Musk said on Thursday that the firm would also ditch its customer referral program, which rewarded perks likes six months of free charging, as it was “adding too much cost to the cars.”

Musk on Friday said that Tesla faces “an extremely difficult challenge” in making its electric vehicles and solar products a competitive alternative to traditional vehicles and energy products that rely on fossil fuels.

“Starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles,” Musk said.

“Moreover, we need to continue making progress towards lower priced variants of Model 3.” The cheapest version of Tesla’s Model 3 currently costs $44,000, and the company is looking to release a $35,000 version.

In its last quarterly financial statement, the firm posted its first profit in two years, reporting a net profit of $311.5 million and $881 million in free cash flow.

“In Q4, preliminary, unaudited results indicate that we again made a GAAP (generally accepted accounting principles) profit, but less than Q3,” Musk said. “This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.”

The firm disappointed investors earlier this month after it announced it delivered 90,700 vehicles in the fourth quarter, lower than investors had expected. That figure could foreshadow the company’s fourth-quarter results, which it’s due to release early next month.

The automaker has faced pressure from a spate of big rivals in the industry, with companies like Ford, Nissan and General Motors committing to investments in the EV space and launching new vehicles in a challenge to Tesla.

Last year was a wild one in terms of news surrounding both Tesla and its boss. Musk’s infamous U-turn on a tweet announcing he would take the company private eventually backfired, with the U.S. Securities and Exchange Commission landing both Tesla and Musk with respective $20 million fines.

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