Tesla Motors unveils the new lower-priced Model 3 sedan at the Tesla Motors design studio in Hawthorne, Calif., on March 2016. Tesla, recognizing as imperative its ability to produce a cheaper electric car, told employees Friday that it must cut 7 percent of its workforce. Tesla’s cheapest model right now is the $44,000 Model 3, and it needs to broaden its customer base to survive. (AP Photo/Justin Pritchard)

Tesla Motors unveils the new lower-priced Model 3 sedan at the Tesla Motors design studio in Hawthorne, Calif., on March 2016. Tesla, recognizing as imperative its ability to produce a cheaper electric car, told employees Friday that it must cut 7 percent of its workforce. Tesla’s cheapest model right now is the $44,000 Model 3, and it needs to broaden its customer base to survive. (AP Photo/Justin Pritchard)

On the road to make an affordable car, Tesla cuts jobs

CEO Elon Musk told staff it’s another step keep the company viable.

  • By The Associated Press
  • Friday, January 18, 2019 2:56pm
  • Business

Associated Press

Tesla will cut 7 percent of its workforce as it tries to lower prices and break out of the niche-car market to produce an electric vehicle that more people can afford.

Tesla’s cheapest model right now is the $44,000 Model 3, and it needs to broaden its customer base to survive.

“Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels,” CEO Elon Musk said in a letter to staff. “While we have made great progress, our products are still too expensive for most people.”

Tesla had boosted its payroll significantly to meet production goals, but then cut its staff by 9 percent in June. The company delivered more than 245,000 electric cars and SUVs last year, nearly as many as all previous years combined. But it still fell far short of a goal set nearly three years ago of manufacturing 500,000 vehicles for the year.

Musk said in October that Tesla Inc., based in Palo Alto, California, had 45,000 employees. The 7 percent cut would mean that about 3,150 people will lose their jobs.

Tesla posted a $311 million quarterly profit in October, only its third profitable quarter in eight years as a public company.

Musk acknowledged that the profit was driven by its ability to sell higher priced vehicles in North America. Tesla dominates that market, but it wants to make electric vehicles for the masses.

And while preliminary numbers indicate another profitable quarter ahead, Musk said it appears to be a smaller.

Shares tumbled 11 percent Friday.

It has been Tesla’s long-held goal to get a less-expensive, mid-range Tesla Model 3 on the road.

“Starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles,” Musk said in the letter.

The key for Tesla is producing an entry-level car in the mid-$30,000 range, which would put it in direct competition with major automakers.

Even as Tesla struggles to produce a more mainstream vehicle, many industry analysts still see the company as the one to beat, even with the world’s biggest automakers now fully engaged in the pursuit of an electric car.

“While EV competition is accelerating, we believe Tesla continues to lead the industry as it moves Model 3 price point towards $35k while most competitors remain engaged in an EV negative margin sum game at higher price points,” wrote Jefferies analyst Philippe Houchois.

Yet producing a more affordable car has only grown more difficult.

The U.S. had put into place a $7,500 tax incentive for people to buy electric cars, but President Donald Trump and other Republicans consider the credit a waste of taxpayer money and want it eliminated. That incentive was reduced to $3,750 this month and it will be cut to nothing by the end of the year.

Sen. John Barrasso, R-Wyo., the chairman of the Senate Environment and Public Works Committee who introduced legislation in October to abolish the tax credit, said it would save about $20 billion over the next 10 years.

He has argued the market for electric vehicles is already established and “no longer needs the crutch of government assistance.”

Gas prices, however, have been inching closer to $2 per gallon as oil prices fall, which makes the hurdle for electric car makers that much higher.

To counter the fading tax incentive, Tesla this month cut the price on each of its three models by $2,000.

Its shares tumbled.

“Tesla has only been producing cars for about a decade and we’re up against massive, entrenched competitors,” Musk said Friday.

The average price for a vehicle in the U.S. is around $37,000, and Musk set the goal of getting into that range early in his tenure, said Maryann Keller, a veteran auto analyst and principal at Maryann Keller and Associates.

“That’s what the expectation is for people that were buying the Model 3, that it would be somewhere between $35-45,000,” Keller said. “The only way he can get that price to that affordable level is by addressing the cost issues.”

And Tesla has been doing so in a number of ways.

This week, Musk said Tesla is shutting down its customer referral program, which offered at least six months of free charging for a new car.

“As Tesla attempts to transition from a niche brand to a volume, mainstream automaker, it is facing the same hurdles every other established car company must clear, said Karl Brauer, executive publisher, Autotrader and Kelley Blue Book. “First and foremost among those, a right-sized, efficient workforce that can produce vehicles at a consistent, sustainable profit.”

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.