Tesla’s plan for the biggest across-the-board staff cuts in company history, with only assembly-line jobs taking no hits, is calibrated to help meet CEO Elon Musk’s goal of second-half profitability and demonstrate that the automotive upstart is ready to be what he’s called a “real company.”
Musk said via Twitter on Tuesday that about 9% of the Palo Alto, California-based car and energy company’s workforce will be let go, as part of a “comprehensive organizational restructuring.” The cuts don’t affect production workers, who are needed to help reach and expand Tesla’s goal of building 5,000 Model 3 electric sedans per week by the end of this month.
“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,” he said in an email to employees. Meeting Tesla’s long-standing clean vehicle and clean energy goals won’t happen unless “we eventually demonstrate that we can be sustainably profitable.”
Until about a month ago, Tesla shares were declining on concerns about the company’s long-term financial health and ongoing problems related to achieving high-volume production of the Model 3, its most affordable electric car to date. And though Tesla has never posted a full-year profit in its decade as a public company, Musk in May set an audacious goal to be in the black in the second half, and then reiterated at the annual shareholder meeting this month that assembly snags were largely fixed and the Model 3 weekly output goal would be met on time.
The stock subsequently rallied 19% in the past week from about $287 on June 5 to $342.77 at the close on Tuesday. Along with the staff cuts, Tesla is also ending a sales program for its solar panels with Home Depot that started last year. “Most” sales staff who’ve been involved in that program will shift to working at Tesla retail facilities, Musk said.
Given that cuts don’t hit production workers and the likelihood that the Home Depot move may be positive for the company’s solar business, Musk’s moves are “positive in helping Tesla track toward profitability later this year,” James Albertine, an equity analyst with Consumer Edge Research, said in a report on Tuesday. Still, “’production of the Model 3 is still the primary driver of upside to expectations and shares in 2018, in our view.”
Tesla currently has more than 40,000 employees around the world, suggesting the reductions will eliminate nearly 4,000 jobs. Yet it’s also hiring for assembly positions and still seeking “outstanding talent in critical roles,” Musk said, without elaborating.
Early in its startup phase in 2008, prior to its IPO and before the original Roadster was being shipped to customers, a cash crunch and the recession led Tesla to fire more than 100 workers and shutter an engineering facility in Michigan. The company ultimately pulled out of a death spiral back then. A decade later, with vastly more at stake, Musk appears intent on showing Wall Street that Tesla is ready for a new phase.
“A fair criticism leveled at Tesla by outside critics is that you’re not a real company unless you generate a profit,” Musk said in an April memo to employees obtained by Jalopnik.” It didn’t make sense to do that until reaching economies of scale, but now we are there.”
