Tesla cuts 7% of workers to boost Model 3

Tesla announced Friday that it is reducing its workforce by 7 percent, a cost-cutting measure designed to help the company make its Model 3 sedan more accessible in the mass market.

In a memo to employees, Chief Executive Elon Musk said the layoffs are a way to boost margins as the company plans to ramp up production on the Model 3, while also bringing down the price. But Musk warned the road ahead was “very difficult.”

“While we have made great progress, our products are still too expensive for most people,” Musk wrote. “Tesla has only been producing cars for 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.”

Valued at $50 billion, the Palo Alto, California-based company has struggled for years to turn its sleek, battery-powered cars into mainstream products. Currently priced at $44,000, the Model 3 — Tesla’s bid for an affordable, mass market sedan — is still far from Musk’s stated goal of a $35,000 price tag.

Tesla did not immediately respond to request for comment on exactly how many employees will be affected, but it will likely be more than 3,100. Tesla had a workforce of 45,000 in October, according to a tweet from Musk. Last year, the company grew 30 percent — more than the company can support, Musk said in the memo.

Tesla’s shares sank nearly 8 percent in pre-market trading after the cuts were announced.

This is Tesla’s second round of layoffs in less than a year — the

company reduced its work- force by 9 percent in June to cut costs while it tried to pump out more Model 3s despite significant delays. The bet paid off in the short term: The third quarter of 2018 brought record-breaking profits for Tesla after two years of negative cash flow. The company had $6.8 bil- lion in revenue despite a litany of production delays and delivery issues.

Musk touted the results as a “historic quarter” but stressed in a letter to investors that sufficient profitability of the Model 3 was “critical to make our business sustainable.”

Tesla’s fourth quarter results have yet to be announced, but investors were disappointed earlier this month when the com- pany revealed it delivered fewer cars than expected despite attempts to boost production.

STEFAN WERMUTH / BLOOMBERG It’s Tesla’s second set of layoffs in less than a year: It cut its workforce 9 percent in June to trim costs.