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Tesla To Slash Workforce In Effort To Bring Cheapest Model 3 To Market

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Musk hints at possible profit in Q4.

There has been much talk about whether Tesla was able to make a profit in Q4. In addition, with overseas Model 3 sales moving forward and the cheapest (base $35,000) Model 3 looming, adjustments are coming. This isn’t unexpected, however, we didn’t think that the automaker would be cutting full-time employees to make ends meet. Tesla CEO Elon Musk sent a message to all employees today. It stated:



 … 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. Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months.



Musk says that while Tesla was able to generate a GAAP profit in Q4 2018, based on “preliminary, unaudited results,” it’s not as high as that of 2018 Q3. We already know that all automakers are facing what may be a very tough year ahead. General Motors already implemented some necessary steps in November to assure that 2019 may move forward successfully. Additionally, Ford has announced that it’s uncertain just how 2019 will play out.

We’ve included Musk’s letter to employees in its entirety below:

Company Update

This morning, the following email was sent to all Tesla employees:

As we all experienced first-hand, last year was the most challenging in Tesla’s history. However, thanks to your efforts, 2018 was also the most successful year in Tesla’s history: we delivered almost as many cars as we did in all of 2017 in the last quarter alone and nearly as many cars last year as we did in all the prior years of Tesla’s existence combined! Model 3 also became the best-selling premium vehicle of 2018 in the US. This is truly remarkable and something that few thought possible just a short time ago.

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. While we have made great progress, our products are still too expensive for most people. Tesla has only been producing cars for about a decade and we’re up against massive, entrenched competitors. The net effect is that Tesla must work much harder than other manufacturers to survive while building affordable, sustainable products.

In Q3 last year, we were able to make a 4% profit. While small by most standards, I would still consider this our first meaningful profit in the 15 years since we created Tesla. However, that was in part the result of preferentially selling higher priced Model 3 variants in North America. In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.

However, 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. Moreover, we need to continue making progress towards lower priced variants of Model 3. Right now, our most affordable offering is the mid-range (264 mile) Model 3 with premium sound and interior at $44k. The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making our car $1,875 more expensive, and again at the end of the year when it goes away entirely.

Sorry for all these numbers, but I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult. This is not new for us – we have always faced significant challenges – but it is the reality we face. There are many companies that can offer a better work-life balance, because they are larger and more mature or in industries that are not so voraciously competitive. Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity, but succeeding in our mission is essential to ensure that the future is good, so we must do everything we can to advance the cause.

As a result of the above, 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. 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.

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.

For those remaining, although there are many challenges ahead, I believe we have the most exciting product roadmap of any consumer product company in the world. Full self-driving, Model Y, Semi, Truck and Roadster on the vehicle side and Powerwall/pack and Solar Roof on the energy side are only the start.

I am honored to work alongside you.

Thanks for everything,

Elon

Source: Tesla

This article originally appeared on Inside EVs.

 
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They can start by ditching some of the teenagers working at the mall stores. Most do nothing but cause chaos for potential customers, with false information and bad customer service. I almost walked away because of them.
 
Cue the "bad corporation" mantra. I am not privy to all of the details, but as a small business owner that struggles daily to juggle all of the responsibilities that I have to my patients and my staff I do not envy Tesla and specifically Mr. Musk in his endeavor. Good luck to him, Tesla, the employees staying and the employees leaving. I love my wife's Tesla Model 3 and hope one day to be able to afford another car that is as fun to drive as hers.
 
They can start by ditching some of the teenagers working at the mall stores. Most do nothing but cause chaos for potential customers, with false information and bad customer service. I almost walked away because of them.

Agree. Visited mall stores a couple of times before buying but not based on any information I was able to gain from these Tesla 'babysitters". Actually, I think I knew more about the cars than anyone in any of the two locations I visited. Perhaps doing a little manual labor at one of the Giga factories is more their forte.
 
Not to worry, those 7% only worked in Quality Control, UI Design, SeC Repairs, FSD and the Auto-Wipers Division.

Fine.jpeg
 
They can start by ditching some of the teenagers working at the mall stores. Most do nothing but cause chaos for potential customers, with false information and bad customer service. I almost walked away because of them.
Too funny. I felt like the kid at the service center showing me the car/test drive was skipping school that day.
 
They hired a bunch of people to help launch Model 3 last quarter now they are laying them off, not news.[/QUOT
I agree, it looks like they needed only a 23% increase in 2018 labor not 30%. Seems like they were pretty close and I would say the letter is very honest and informative. Being a Tesla employee is sacrificial, they ask alot and if you are near Elon (in any way) it can be perilous I hear. The 2019 stock price will still be volatile I guess, fine with me... buy MORE
 
They hired a bunch of people to help launch Model 3 last quarter now they are laying them off, not news.
Tesla slashed Model S and X staff in recent layoffs
Deep cuts occurred in its sales, delivery and Model S and Model X production teams, according to current and newly laid off workers. These people also said that Tesla has suspended night time production of its Model S sedans and Model X SUVs at its Fremont, California car plant.

Model 3 employees for the 'ramp up' didn't get the axe. In fact they moved more workers to model 3 prod.
 
I’m a little confused by this latest move. They have stopped producing the S/X 75D and seemingly cut the total number of employees building those models. However, I assumed (possibly incorrectly) that the margins on the 75D were still higher than the margins on the non-performance Model 3. Maybe that was incorrect because it doesn’t make sense to cut production of a higher margin car in order to speed production of a lower margin car like the base Model 3.

A few possibilities as I see them:
1. The 75D didn’t have high margins as I had thought.
2. They are focusing on environmental impact more than profits by getting larger numbers of low margin vehicles put into the world.
3. They are attempting to keep their promise of producing the $35k version of the 3 and have diverted as many resources as possible to that effort regardless of its effect on profitability.
 
Tesla seriously needs to divert headcount into their Service Centers, as currently the wait for an appointment at my local center is over 6 weeks.

They sold a lot of Model 3s recently, without a corresponding growth in the support and Supercharger infrastructure. If they intend to keep up a high sales pace, support must grow to keep pace.

I am sure most of us on the forums love our cars, as I do, but the lack of parts and service support will serve to dampen the reputation of Tesla amongst potential buyers.
 
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