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.
Tesla has laid off about 9 percent of its employees as part of a company-wide restructuring, according to an email sent to staff by CEO Elon Musk this morning. The cuts, which account for more than 3,000 jobs, will not affect the companys continued effort to ramp up production of the Model 3 sedan, Musk said. We made these decisions by evaluating the criticality of each position, whether certain jobs could be done more efficiently and productively, and by assessing the specific skills and abilities of each individual in the company, Musk wrote. In order to minimize the impact, Tesla is providing significant salary and stock investing (proportionate to the length of service) to those we are letting go. Tesla has recently faced pressure from its investors to ramp up production of the Model 3. The company had $2.6 billion in cash at the end of the first quarter of the year, and its spending around $1 billion every quarter. While sales of the more expensive Models S and X continue to tick up each quarter, the company needs to start making money on the Model 3 if it wants to turn a profit, or it will have to borrow or raise more capital soon — something Musk has insisted the company wont do this year. Given that Tesla has never made an annual profit in the almost 15 years since we have existed, profit is obviously not what motivates us, he wrote today. What drives us is our mission to accelerate the worlds transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable. That is a valid and fair criticism of Teslas history to date. The company has missed a number of deadlines for Model 3 production targets, though the CEO said at last weeks annual shareholder meeting that Tesla is now making 500 per day, or about 3,500 per week. Tesla is trying to get to a rate of 6,000 Model 3s per week by the middle of the year, at which point it will break even on each car it turns out, according to the companys most recent earnings report. Musk first signaled that a reorganization of the companys structure was coming in an April email to Tesla staff. In it, he wrote about how unnecessary expenses, excessive meetings, poor communication, and a Russian nesting doll series of contractors who never want to end the money train were hampering the companys progress toward meeting his ambitious goals. Difficult, but necessary Tesla reorg underway. My email to the company has already leaked to media. Here it is unfiltered: In a subsequent May email, Musk announced he was flattening Teslas management structure. That followed news that the companys chief engineer was taking a leave of absence and the departure of Teslas government safety liaison. Later in the month, Tesla announced a handful of new hires at the director and executive level, some coming from companies like Apple and Amazon. The new round of layoffs will not affect Teslas recent efforts to hire more employees to shore up production of the Model 3, Musk said in todays email. [T]here is still a significant need for additional production personnel, he wrote. I also want to emphasize that we are making this hard decision now so that we never have to do this again. In April, Musk asked employees to refer anyone you know who you think meets the Tesla bar for talent, drive and trust so that the company could produce its newest electric car around the clock. The push to make more Model 3s, which Musk has referred to as production hell, has faced scrutiny from a number of parties inside and outside of the company. This week, Teslas former director of environmental, health, safety, and sustainability filed a lawsuit claiming he was wrongfully terminated for calling out unreported injuries at the companys Fremont assembly factory. (Tesla says the former director was fired after the company received an onslaught of complaints about his behavior in the workplace.) In an April report from the nonprofit news organization Reveal, five former members of that same team made similar claims about how Tesla allegedly didnt properly report workplace injuries. A recent CNBC report detailed a number of previously undisclosed fires at the companys paint shop. This is the most excruciating, hellish several months that Ive ever had, Musk said at the recent shareholder meeting. In his email to employees, Musk also announced that Tesla will discontinue a recently announced initiative to sell its home energy generation and storage products at Home Depot. The majority of Tesla employees working at Home Depot will be offered the opportunity to move over to Tesla retail locations, he wrote. Correction: This article previously misquoted part of Musks email. Musk said there was valid and fair criticism, not valid unfair criticism. It has been updated to reflect this change.