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  HOME | Business & Economy (Click here for more)

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

SAN FRANCISCO – Tesla Inc. said on Tuesday it will cut about 9 percent of its workforce in an effort to deliver its first profit during a make-or-break period of building a mass-market 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 all-electric Model 3 compact sedan.

“This will not affect our ability to reach Model 3 production targets in the coming months,” he wrote.

In a memo to employees, Musk said the job cuts are mostly aimed at salaried staff and won’t affect production workers assembling the company’s vehicles.

Tesla investors welcomed the news on Tuesday, sending the company’s shares up more than 3 percent to $342.77.

The stock has fallen about 8.8 percent 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 generate free cash flow.

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,” Musk wrote in the email to employees Tuesday. “That is a valid and fair criticism of Tesla’s history to date.”

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.

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,” he added.

“Cutting heads will likely only lead to more delays, more stress and lower morale,” 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, Musk acknowledged that he was losing good people. “I think they will find new jobs quickly,” he said.

In May, Musk told workers he planned to change the management structure of the company following the abrupt decision by Tesla’s chief engineer, Doug Field, to take a leave of absence.

Tesla has lost several other high-profile executives since the beginning of 2017, including the chief financial officer, who has been replaced.

The auto maker finished 2017 with about 37,500 employees, a sharp increase from previous years as it expanded its ambitions and acquired SolarCity Corp., the solar-panel maker.

Tesla continued an aggressive hiring pace through the first months of 2018, hitting a total of about 40,000, according to a person familiar with the effort.

Tesla had previously indicated that it finished 2017 with more than 9,000 production-line workers – but that was before a hiring spree to make up for failed efforts to automate the Model 3 assembly line.

“Tesla has grown and evolved rapidly over the past several years, which has resulted in some duplication of roles and some job functions that, while they made sense in the past, are difficult to justify today,” Musk said in his memo.

He added: “We are also continuing to flatten our management structure to help us communicate better, eliminate bureaucracy and move faster.”

Under a flat management structure, employees work for top leaders with few layers of managers in between.

Musk has already taken command of several significant roles at the company, including oversight of vehicle production from Field in April, and the sales and services divisions in February following the departure of Jon McNeill as Tesla’s president of global sales.

His moves are being closely tracked both by short-sellers betting the company will fail to turn into a major automotive player, and by supporters who believe in his vision of a future where electric-powered cars are driven by computers.

The latter group has won out so far, pushing Tesla’s market value to over $50 billion to rival General Motors Co., which sells far more vehicles and is profitable.

 

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