Tesla shares fell nearly 8 percent in premarket trading after Tesla CEO Elon Musk told workers about the job cuts Friday in a letter posted online, according to CNN.
In the letter, Musk wrote the company will only retain the most critical temps and contractors. Musk explained that Tesla is “up against massive, entrenched competitors” and must work “much harder than other manufacturers to survive while building affordable, sustainable products.”
The job cuts will represent close to 3,150 layoffs, based on the most recent Tesla staff count of 45,000 from Musk in October. Jefferies analyst Philippe Houchois, in a note to investors suggests the job cuts are not exactly a bad thing. “Reducing headcount also suggests productivity gains.”
“This is, in our view, consistent with slower growth rates but mostly the scope to improve productivity and flow that we identified during our visit to the Fremont plant mid-November 2018.”
“It’s not a huge surprise to see this,” Oppenheimer senior research analyst Colin Rusch said on CNBC’s “Squawk Box.”
“This looks to us like a mix of a proactive move in terms of cutting costs, … but also a bit of cleanup on the kind of massive push to get the Model 3 out this year,” Rusch added.
Tesla admitted in his letter to employees that “our products are still too expensive for most people.” In June last year, Tesla cut its staff by 9 percent. The electric vehicle company delivered over 245,000 electric cars and SUVs last year, almost as many as the previous three years combined, but still fell short of the 500,000 vehicle goal Musk has set.
According to CTV News Canada, in October last year, Tesla posted a $311 million quarterly profit – Its only third profitable quarter in eight years as a company. Tesla will now have to struggle to produce a more affordable vehicle, something that Musk has always wanted to do, anyway.
Now that electric vehicles are becoming mainstream, the competition has become fierce with most major automakers intent on trying to beat Tesla at its own game. Tesla and other global automakers including General Motors Co., Volkswagen AG, and Nissan Motor Corp. are pouring billions of dollars into manufacturing electric vehicle.
