Elon Musk says he’s firing more than 3,000 Tesla staff because of pressure on profits and Model 3 production challenges

Tesla CEO Elon Musk.

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Tesla CEO Elon Musk.
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Lucy Nicholson / Reuters

  • Tesla is laying off 7% of its employees, according to an email Elon Musk sent to workers.
  • Musk said the job cuts were due to pressure on profits and difficulties producing the Model 3.
  • Musk did not specify which staff members were most at risk of being fired, suggesting the layoffs could be spread throughout the company.
  • The move comes as Tesla seeks to prove it can become consistently profitable.

Tesla is laying off 7% of its employees, according to an email CEO Elon Musk sent to workers on Friday that was later published on the company’s website.

The job cuts will affect more than 3,000 staff members, based a figure Musk cited last year saying the company had a workforce of 45,000. It follows a similar round of layoffs in June.

Tesla shares were down about 8% in premarket trading.

Musk said pressure on profits and the ambition to deliver lower-cost Model 3 vehicles “in all markets” later this year meant the “road ahead is very difficult.”

Tesla surprised Wall Street with a $312 million profit in the third quarter of 2018, but Musk said this would shrink in the fourth quarter.

Tesla products “are still too expensive for most people,” he added, also saying competition was fierce from more established rivals.

“We unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support),” Musk said. He added that “only the most critical temps and contractors” would be retained.

Musk did not specify which workers were most at risk of being fired, suggesting the layoffs could be spread throughout the company.

Read more: Don’t be distracted by Tesla’s surprise profit – all that matters is how much money the company is bringing in

“To those departing, thank you for everything you have done to advance our mission,” he said. “I am deeply grateful for your contributions to Tesla. We would not be where we are today without you.”

Tesla is set to report its fourth-quarter earnings on February 5. Reflecting on 2018, Musk said it was the most challenging but successful year in Tesla’s 16-year history.

“Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: Making our cars, batteries and solar products cost-competitive with fossil fuels,” he said.

Were you affected by the Tesla layoffs? Have a story to share? Contact Business Insider’s Mark Matousek at mmatousek@businessinsider.com and Linette Lopez at llopez@businessinsider.com.

Here’s Elon Musk’s email to Tesla’s staff:

As we all experienced first-hand, last year was the most challenging in Tesla’s history. However, thanks to your efforts, 2018 was also the most successful year in Tesla’s history: we delivered almost as many cars as we did in all of 2017 in the last quarter alone and nearly as many cars last year as we did in all the prior years of Tesla’s existence combined! Model 3 also became the best-selling premium vehicle of 2018 in the US. This is truly remarkable and something that few thought possible just a short time ago.

Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels. While we have made great progress, our products are still too expensive for most people. Tesla has only been producing cars for about a decade and we’re up against massive, entrenched competitors. The net effect is that Tesla must work much harder than other manufacturers to survive while building affordable, sustainable products.

In Q3 last year, we were able to make a 4% profit. While small by most standards, I would still consider this our first meaningful profit in the 15 years since we created Tesla. However, that was in part the result of preferentially selling higher priced Model 3 variants in North America. In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. 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.

However, 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. Moreover, we need to continue making progress towards lower priced variants of Model 3. Right now, our most affordable offering is the mid-range (264 mile) Model 3 with premium sound and interior at $44k. The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making our car $1,875 more expensive, and again at the end of the year when it goes away entirely.

Sorry for all these numbers, but I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult. This is not new for us – we have always faced significant challenges – but it is the reality we face. There are many companies that can offer a better work-life balance, because they are larger and more mature or in industries that are not so voraciously competitive. 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.

As a result of the above, we unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors. Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn’t any other way.

To those departing, thank you for everything you have done to advance our mission. I am deeply grateful for your contributions to Tesla. We would not be where we are today without you.

For those remaining, although there are many challenges ahead, I believe we have the most exciting product roadmap of any consumer product company in the world. Full self-driving, Model Y, Semi, Truck and Roadster on the vehicle side and Powerwall/pack and Solar Roof on the energy side are only the start.

I am honored to work alongside you.

Thanks for everything, Elon