Tesla turned a profit in the last quarter of 2018, but it isn’t enough to sustain the company’s growth.
In a Friday e-mail from Tesla CEO Elon Musk, the company announced it would cut about 7 percent of its workforce to accommodate thin profit margins and the arrival of the entry-level Model 3. Although Tesla grew its production significantly in 2018, they only built more expensive versions of the Model 3. To sustain the company’s long-term viability, Musk argues, the company needs to make progress toward a more affordable Model 3.
Musk said in his e-mail to Tesla employees, “While we have made great progress, our products are still too expensive for most people.” He also noted Tesla’s razor-thin profit margins. The company posted a 4 percent profit in Q3 of last year, and preliminary results for Q4 was lower than that.
Losing the EV tax credit
Then there’s the matter of the U.S. EV tax credit. Since Tesla has ramped up production, the $7,500 credit fell by half on January 1 to $3,750. On July 1, it halves again to $1,875. Finally, by the end of 2019, Tesla buyers won’t get any tax credit at all. To that end, the company already dropped its prices to partially offset the loss. As the tax credit continues to dwindle, the company will also reduce its workforce.
Musk e-mail also cites a 30 percent growth in Tesla’s workforce in 2018. On top of a 7 percent cut in employees, Musk also broke the news that Tesla would retain “only the most critical temps and contractors.” The company is also focusing on refining its manufacturing processes to make the Model 3 less expensive and time-consuming to build. “Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range…Model 3 at $35k and still be a viable company. There isn’t any other way.”
Tesla stocks dropped nearly 8 percent upon the news, down to approximately $320 a share as of January 18. The company is also still working on bringing full autonomy to the market, as well as its planned Roadster, Model Y, Semi and Truck models.