Tesla will need to make cheaper Model 3s by the second half of 2019

Tesla needs to get cracking on a cheaper car.

The electric vehicle maker said Friday it plans to cut about 7 percent of its workforce, which by the last company headcount would equal something in the vicinity of 3,100 jobs. The plan is to cut costs and get closer to making the $35,000 Model 3 the company has been promising since it first unveiled the car in 2016.

Now the company’s ration of $7,500 U.S. federal tax credits is running out, which stands to hurt demand in the United States.

For now, Tesla has Europe to lean on, Wedbush analyst Dan Ives told CNBC. The company began allowing European reservation holders to configure their 3 orders in early December and plans to begin delivering some versions of the Model 3 to the region by February.

Tesla was not available for comment.

“If you think about the trajectory, the first half of 2019 is really Europe coming onboard,” said Wedbush analyst Dan Ives. That strength in demand will likely offset relative weakness in demand in the U.S., in large part to the waning tax credit and Tesla’s relatively high prices. “But then ultimately in the second half you need the mid-range Model 3 to really start to kick in.”

One of the primary reasons for the cuts is the fact that the cars Tesla makes are still “too expensive for most people,” said CEO Elon Musk in an email to employees.

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