Elon Musk, in Search of Profit, Cuts Tesla’s Workforce

Posted June 12, 2018 8:06 p.m. EDT
Updated June 12, 2018 8:08 p.m. EDT

Tesla has lost money every year since its founding in 2003. But the automaker’s chief executive, Elon Musk, is pulling out all the stops to end that streak.

In the latest sign, Musk said Tuesday that Tesla would reduce its workforce by about 9 percent, or roughly 3,500 of its 37,500 employees, as part of a companywide restructuring.

The cutbacks come in the midst of a challenging and expensive effort to transform Tesla from a niche producer of electric vehicles to a mainstream automaker, an ambition hinging on its first mass-market offering, the Model 3.

In an internal email that he posted on Twitter, Musk said most of those losing their jobs would be salaried employees. He said the cuts would have no effect on production workers at the company’s car plant in Fremont, California. And he emphasized the quest for profitability.

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

Starting with its Model S sedan and Model X sport-utility vehicle, Tesla has shown it can produce electric cars that command lofty prices. Last year it sold more than 100,000 cars, and it is becoming an increasing threat to German luxury brands like Mercedes-Benz and BMW. Tesla has pointed to May figures showing that its Model 3 outsold the Mercedes C-Class and the BMW 3 Series, two of the top-selling luxury cars in the United States.

But turning a profit soon is a critical task. In the first quarter, Tesla recorded a loss of $785 million on revenue of $3.4 billion. And the company consumed $745 million in cash, up sharply from $112 million in the previous quarter.

Alarmed by the cash burn and the slow ramp-up of Model 3 assembly, Moody’s Investors Service cut Tesla’s credit rating in March.

Tesla’s stock ended the day with a gain of more than 3 percent, closing at $342.77, though it had been trading even higher before the announcement.

The automaker is scrambling to streamline and accelerate assembly of the Model 3, which it is counting on for revenue to offset the billions it is spending to develop new models. Last week, Musk said Tesla was making about 3,500 Model 3s a week and expected to increase that to 5,000 a week — the level needed for the company to become profitable — by the end of June.

Musk has attributed the production troubles to excessive use of robots and automated machinery, especially in assembly jobs more easily done by workers. Tesla has been modifying the Model 3 production line to remove robots and has been adding dozens of workers each week to increase output.

The job cuts announced Tuesday “will not affect our ability to reach Model 3 production targets in the coming month,” he said.

Musk has forecast that Tesla will generate profits in the third and fourth quarters of this year. But if it fails to achieve a breakthrough in Model 3 production and remains unprofitable, it will probably need to turn to investors for more capital.

Last week, at Tesla’s annual meeting, Musk said the company would not need to raise more money.

The job cuts indicate that he isn’t willing to rely on rising Model 3 production alone to move Tesla into the black.

“Nine percent of the workforce is a pretty good-sized number,” said Rebecca Lindland, executive analyst at Kelley Blue Book, an automotive research firm. “As they’ve been ramping up for the Model 3, as well as maintaining sales of the Model S and Model X, it is expected that payroll may be bloated. This is an attempt to cut costs and contain expenses.”

The job cuts also suggest that Tesla is moving to streamline the solar-panel business it added in its 2016 acquisition of SolarCity, where Musk had been chairman. After the acquisition, Tesla cut back on SolarCity’s aggressive marketing tactics, and its sales of rooftop panels fell sharply in 2017. SolarCity also added more than 12,000 employees to Tesla’s payroll.

Musk had hinted recently that a thinning of Tesla’s executive ranks was in the works, and in his email he said Tesla had grown rapidly in the last several years, resulting in duplication of some jobs.

He also said Tesla was ending an agreement to sell its solar panels in Home Depot stores.