Tesla is to let go of 7% of its full-time employees and cut ties with many temporary staff and contractors, as it tries to make its cars more cost-effective for consumers.
CEO Elon Musk said in a Friday memo that last year was its most successful ever, with record production, but Tesla is facing heavy price pressure from more established rivals as it attempts to roll out its cheapest car, the Model 3, across all markets.
“We unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors,” Musk wrote.
“Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn’t any other way.”
Currently, the cheapest Model 3 is the mid-range model with the 264-mile range and premium sound and interior. This costs $44,000, and it’s about to get $1,875 more expensive in the U.S. when the federal tax credit for electric vehicles disappears in the middle of the year.
At last count, Tesla had around 45,000 employees, though it’s unclear how many of those are full-time staffers. The company also cut 9% of its workforce in mid-2018, again as a result of over-rapid expansion.
“To those departing, thank you for everything you have done to advance our mission. I am deeply grateful for your contributions to Tesla. We would not be where we are today without you,” Musk wrote.