Tesla (NASDAQ: TSLA) has announced that it would slash its workforce by 7%, or 3,150 people. As a result of the news, Tesla shares plummeted by 9%.
"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," said CEO Elon Musk said in a note addressed to staff. "While we have made great progress, our products are still too expensive for most people...To those departing, thank you for everything you have done to advance our mission."
Rather than cut the cost of the Model 3 to entice consumers, Musk is trimming down the labor department so he can increase the chances of meeting revenue forecasts in an increasingly challenging environment. Tesla is attempting to have the Model 3 in the mid-$30,000 range, in line with its company goal to appeal to a wider range of consumers. Musk hinted that the price could be raised for models going to Europe and Asia to allow the company to "target a tiny profit" with "great difficulty, effort and some luck."
Tesla has struggled with production of its Model 3 sedan. It's designed to be a mass-market version of its luxury units, but it still comes with a relatively hefty price tag. The car only became more expensive after US tax incentives expired at the end of 2018. Tesla had promised customers who had placed orders that he would ship the Model 3 before the expiry date, but failed to do so, instead offering to reimburse them. Tesla has also long struggled to meet its production goals for the Model 3 line, struggling with technical, assembly, and supplier problems. Though it eventually ramped up its numbers at the end of 2018, these problems - along with volatility from Musk himself, who ran afoul of the Securities and Exchange Commission in autumn of 2018 ill-advised tweets about taking the company private - may have dampened consumer enthusiasm. Tesla's internal problems are combined with a slackening auto market in China and recent market volatility.
"It will be especially challenging for Tesla as it desperately tries to rack up more quarterly profits after having one in the third quarter, and it faces an onslaught of competitors in the next couple of years," said Michelle Krebs, an executive analyst at Autotrader.
Still, other analysts were more optimistic about Tesla's chances of success with its Model 3 line.
"While EV competition is accelerating, we believe Tesla continues to lead the industry as it moves Model 3 price point towards $35k while most competitors remain engaged in an EV negative margin sum game at higher price points," said Jefferies analyst Philippe Houchois in a note.