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Tesla cuts 7 percent of staff as Musk says "road ahead is very difficult"

Wired goes inside Tesla's "production hell"

Tesla's CEO Elon Musk said Friday that the company will cut its staff by about 7 percent, saying "the road ahead is very difficult."

The electric car and solar panel maker notified its employees about the staff cuts and other plans in an email posted on Tesla's website. Musk wrote that Tesla hopes to post a "tiny profit" in the current quarter but a 30 percent expansion in its workforce last year was more than it can support.

Tesla's shares $45.05, or 13 percent, to $302.26 on Friday. The stock had tumbled earlier this month after it cut vehicle prices by $2,000 and announced fourth-quarter sales figures that fell short of Wall Street estimates. The company's cars are "still too expensive for most people," Musk noted. 

"Tesla has only been producing cars for about a decade and we're up against massive, entrenched competitors," Musk wrote. "The net effect is that Tesla must work much harder than other manufacturers to survive while building affordable, sustainable products."

Musk said in a tweet in October that Tesla, based on Palo Alto, California, had 45,000 employees. A 7 percent cut would involve laying off about 3,150 people.

Previous layoffs

The most recent round of layoffs come after the carmaker slashed 9 percent of its workforce last year. In that round of cuts, Tesla laid off about 3,600 white-collar workers, aiming to reduce costs and achieve profitablity.

On Friday, Musk said the company's issues are "not new for us – we have always faced significant challenges – but it is the reality we face."

He added, "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."

Temporary workers and contractors will also see cuts, with Musk writing that "only the most critical temps and contractors" will remain with the company. 

Car production

The company says it delivered over 245,000 electric cars and SUVs last year, nearly as many as all previous years combined. But its 2018 production fell far short of a goal set nearly three years ago of manufacturing 500,000 vehicles for the year. That goal was announced in May of 2016 based on advance orders for its mid-range Model 3, which Musk said sells for $44,000.

Musk said Tesla plans to ramp up production of the Model 3, "as we need to reach more customers who can afford our vehicles."

"Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity," he said in the memo, "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."

Tesla broke ground earlier this month for a factory in Shanghai, its first outside the United States. Musk said it plans to begin production there of the Model 3 and a planned crossover by the year's end.

Tesla and other global automakers including General Motors Co., Volkswagen AG and Nissan Motor Corp. are pouring billions of dollars into manufacturing electric vehicles in China.

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