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.
