Job cuts are needed to reach sustained profitability, Elon Musk said. Tesla is cutting nine percent of its workforce, CEO Elon Musk announced today in a memo to staff. "We are a small company in one of the toughest and most competitive industries on Earth," Musk wrote. He argued that cost cutting was necessary to turn Tesla into a sustainably profitable company. The layoffs are "almost entirely" in salaried positions and won't impact Tesla's efforts to increase Model 3 production, Musk said. Tesla didn't give an exact figure for the number of layoffs. But Tesla had 37,543 full-time employees at the start of the year and has hired more since then. So a nine-percent cut means letting more than 3,000 workers go. That makes these layoffs much more significant than the hundreds of workers Tesla fired last fall. At the time, Tesla had 33,000 employees, suggesting that Tesla's headcount is still on an upward trajectory overall. Tesla's announcement comes a month after Musk announced a restructuring of Tesla's organizational chart. Musk wants to flatten the management structure at the company to make it less bureaucratic. Tesla has been burning cash almost continuously since it was founded 15 years ago. The company has enjoyed positive cash flow and profits for only two brief periods in the last eight years—one in late 2013 and another in mid-2016. Each time, after a few quarters of positive cashflow, Tesla would ramp up production of another car model—first the Model X, then the Model 3—and rack up more big losses, as this chart of free cash flow from Bloomberg shows. This isn't too surprising. We'd expect any startup in a capital-intensive business to spend heavily as it scales up. But Tesla obviously can't keep losing money forever. In recent months, Musk has pledged that Tesla will reach sustained profitability by the third quarter of 2018—just a few months from now. That prediction has been met with skepticism by many analysts. But Musk has promised an acceleration of Model 3 manufacturing, which will allow the company to bring in a lot more revenue. At the same time, the job cuts announced today will reduce Tesla's costs, allowing the company to reach profitability more easily.
( Reuters) — Electric car maker Tesla is cutting several thousand jobs across the company as it seeks to reduce costs and become profitable without endangering the critical production ramp-up for its Model 3 sedan. In an email he said had been sent to staff, billionaire Chief Executive Elon Musk said on Tuesday that the cuts were part of a simplification of Teslas management structure promised last month. As part of this effort, and the need to reduce costs and become profitable, we have made the difficult decision to let go of approximately 9 percent of our colleagues across the company, the email read. These cuts were almost entirely made from our salaried population and no production associates were included, so this will not affect our ability to reach Model 3 production targets in the coming months. Tesla has been trying to hit a 5,000 per week production target of its Model 3 sedans after facing initial production hiccups. Last week, Musk said the carmaker should achieve its target by the end of June. Shares rose as much as 7 percent and were last up 3.6 percent at $344.18. The layoffs mean there likely will not be more job cuts in the near-term, said Efraim Levy, analyst at CFRA Research, adding that Tesla will likely raise capital early in 2019. I dont think if Tesla becomes profitable in Q3 and Q4, that will be sustainable because of ramping up of the production. The layoffs may help them to achieve profitability in the near-term but not sustain it. Tesla has been burning through cash as it continues to spend on its assembly line and prepares for new investments on projects such as the Model Y crossover and its Gigafactory. Free cash flow, a key metric of financial health, widened to negative $1 billion in the first quarter from negative $277 million in the fourth quarter, excluding costs of systems for its solar business. Several Wall Street analysts anticipate a capital raise this year despite Musks statements that it will not be necessary due to profitability and positive cash flow in the third or fourth quarters. Tesla said it began notifying impacted workers on Tuesday and would continue to do so throughout the week. A spokesman said it would reduce overall employment back to around 37,000 — roughly in line with numbers at the end of last year. Musk also said that Tesla had decided not to renew a residential sales agreement with Home Depot (HD.N), and would focus instead on selling its solar products through its own stores and website. The company will seek to re-employ most Tesla employees at Home Depot stores at its own locations. Musk told employees in May that the company was undergoing a thorough reorganization as it contends with production problems, senior staff departures and recent crashes involving its electric cars. At the start of April, the companys shares had fallen by around 35 percent from a peak hit last September but signs that it is on course to meet an output target of Model 3 cars have wiped out almost all of this years losses.