Tesla is cutting 7% of its workforce

Tesla is reducing its full-employee headcount by 7%, Elon Musk announced in an email sent to employees on Friday. 

The layoffs are necessary if the company plans to keep turning profit as it starts delivering cheaper variants of the Model 3, Musk wrote. The company will also 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,” Musk wrote. 

Musk points out that the layoffs come after the company grew its workforce by 30% in 2018, but that’ll likely be of little comfort to the people that have been laid off. 

Just yesterday, Musk announced the closure of the company’s customer referral program on Feb. 1, also in an effort to reduce costs. 

The layoffs come after a successful year for Tesla, in which the company turned a quarterly profit for the first time in its history after it managed to scale Model 3 production to sufficiently high numbers. This year, however, the company will have to start delivering cheaper variants of the Model 3, while facing a reduction of the U.S. tax credit — it’ll be cut in half in July, and it’ll be gone fully by year’s end. 

For those waiting for their cheaper Model 3, the wording of the memo is interesting. “Starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets,” Musk says. For those waiting for the cheapest Model 3, which starts at $35,000, there seem to be no guarantees that they’ll get it in 2019.