Tes­la to Cut Work­force by 9% In Bid for Sus­tai­nable Pro­fit

L'Opinion - - The Wall Street Journal L'Opinion -

Tes­la Inc. on Tues­day said it will cut about 9% of its work­force in an ef­fort to de­li­ver its first pro­fit du­ring a make- or­break per­iod of buil­ding a mass­mar­ket elec­tric car.

The layoffs of about 3,500 em­ployees come as Chief Exe­cu­tive Elon Musk reor­ga­nizes Tes­la’s ma­na­ge­ment struc­ture to make it flat­ter, and as the com­pa­ny tries to ramp up pro­duc­tion of the al­le­lec­tric Mo­del 3 com­pact se­dan.

In a me­mo to em­ployees, Mr. Musk said the job cuts are most­ly ai­med at sa­la­ried staff and won’t af­fect pro­duc­tion wor­kers as­sem­bling the com­pa­ny’s ve­hicles. “This will not af­fect our abi­li­ty to reach Mo­del 3 pro­duc­tion tar­gets in the co­ming months,” he wrote.

Tes­la in­ves­tors wel­co­med the news on Tues­day, sen­ding the com­pa­ny’s shares up more than 3% to $ 342.77. The stock has fal­len about 8.8% over the past 12 months amid Tes­la’s struggles to crank up ve­hicle pro­duc­tion.

The Si­li­con Val­ley au­to ma­ker, which hasn’t tur­ned an an­nual pro­fit in its 15-year his­to­ry, is fa­cing heigh­te­ned scru­ti­ny from ana­lysts and in­ves­tors af­ter star­ting as­sem­bly of the Mo­del 3 last Ju­ly and mis­sing se­ve­ral pro­duc­tion mi­les­tones that would have en­abled it to ge- ne­rate free cash flow. Mr. Musk has pro­mi­sed to fi­nal­ly reach the goal of ma­king 5,000 Mo­del 3 se­dans a week by the end of June – a rate that if main­tai­ned would al­low the com­pa­ny to show a pro­fit in the third and fourth quar­ters, he has said.

“What drives us is our mis­sion to ac­ce­le­rate the world’s tran­si­tion to sus­tai­nable, clean ener­gy, but we will ne­ver achieve that mis­sion un­less we even­tual­ly de­mons­trate that we can be sus­tai­na­bly pro­fi­table,” Mr. Musk wrote in the email to em­ployees Tues­day. “That is a va­lid and fair cri­ti­cism of Tes­la’s his­to­ry to date.”

Mr. Musk made si­mi­lar com­ments in May af­ter bur­ning through more cash in the first quar­ter than ana­lysts had ex­pec­ted. At the time, he al­so rei­te­ra­ted sta­te­ments that he didn’t want to raise more cash— even as se­ve­ral ana­lysts said Tes­la will have to do so.

The com­pa­ny fi­ni­shed the first quar­ter with $2.7 bil­lion in cash on hand. Tes­la an­noun­ced it was pa­ring back plan­ned ca­pi­tal ex­pen­di­tures this year to less than $3 bil­lion from $3.4 bil­lion last year. Its loss at­tri­bu­table to com­mon sha­re­hol­ders in the first quar­ter was $ 710 mil­lion, the fifth conse­cu­tive quar­ter of re­cord losses.

Tes­la said the la­test work­force cuts are af­fec­ting all de­part­ments ex­cept pro­duc­tion wor­kers. They come as Tes­la pre­pares to launch other ve­hicles over the co­ming years. Mr. Musk has said he ex­pects to re­veal the Mo­del Y com­pact sport- uti­li­ty ve­hicle in March, ahead of pro­duc­tion plan­ned to start in the first half of 2020. He al­so has said pro­duc­tion of the com­pa­ny’s trac­tor-trai­ler truck and new sports car, the Road­ster, will be in 2020.

“Cut­ting your way to pro­fi­ta­bi­li­ty as you try to grow and launch ve­hicles is ve­ry dif­fi­cult,” Dave Sul­li­van, an ana­lyst for Au­toPa­ci­fic Inc., said. “It seems like a strange time to cut un­less you have pro­mises about pro­fi­ta­bi­li­ty for Q3 and your re­ve­nue can’t sup­port cur­rent staf­fing le­vels.”

“Cut­ting heads will li­ke­ly on­ly lead to more de­lays, more stress and lo­wer mo­rale,” Mr. Sul­li­van said.

Tes­la is fa­cing in­crea­sed com­pe­ti­tion from tra­di­tio­nal au­to ma­kers, such as Porsche and Ja­guar, which are ra­cing to bring their own all- elec­tric cars to mar­ket, and from com­pa­nies wor­king to de­ve­lop com­pe­ting self- dri­ving car tech­no­lo­gy. On Twit­ter, Mr. Musk ack­now­led­ged that he was lo­sing

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