Tesla has unveiled plans to reduce its workforce by 3,000 or 7% of the total number of employees.
Elon Musk, brains behind the company, added that the company will only retain employees most critical to its production.
Competition Identified Key Reason Behind Cost Cuts
Letter sent to employees by Elon Musk points out to the increase in competition, thus requiring Tesla to work harder to keep making sustainable yet affordable cars for consumers.
He also thanked the departing employees, appreciating their contribution to advancing company’s mission forward.
Workforce Cut by Tesla Despite Profits
Tesla currently employees 45,000 strong workforces, out of which 3,150 would no longer be working there.
The current employee cutdown comes as a surprise to some since third quarter results showed Tesla making a profit of $312 million. However, Elon Musk indicated that unaudited fourth quarter results reflect dwindling profits.
The CEO reemphasized the fact that Tesla needs to produce cheaper versions of Model 3. Starting price of Tesla’s cheapest vehicle is $44,000 USD, but the electric car maker aims to reduce it to $35,000 by this year.
Tech experts that understand financial dynamics of electric car industry believe this layout won’t have long term impact. They point out to the fact that automation has taken care of many of the processes which earlier required human assistance.
US Federal Tax Credit Slashed
The earlier tax credit given to Tesla customers is reduced from $7,500 to $3,750, thus making it less incentivizing for them to purchase Model 3 and other vehicles made by the company. In response to these tax cuts, Tesla has already reduced its prices by $2,000 for Model 3 and Model X. However, this is not all, the credit wall goes down further in the second half of 2019 to just $1,875. Customers won’t be given any tax credits on buying Tesla vehicles going into 2020.
Besides facing intense competition and reduced tax credits for Tesla’s customers, Elon Musk’s leadership skills have been questioned, resulting in the inclusion of two new independent members to its board. Also, entry of Tesla into Chinese electric car market means only one thing, to reduce costs to a level where it can compete internationally with other electric car makers of the world.