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Tesla is cutting 9% of its workers as it tries to turn a profit, Elon Musk says

Tesla is cutting 9% of its workers as it tries to turn a profit, Elon Musk says
Cars are lined up near the Tesla Motors factory complex in Fremont, Calif., in 2016. (LiPo Ching / Bay Area News Group)

Tesla Inc. is cutting about 9% of its workers — the biggest layoff in its 15-year history — as it burns through cash in an effort to meet production goals for its crucial Model 3 sedan.

The layoffs, which total about 3,600 mainly salaried employees, were disclosed in an email to workers at the Palo Alto electric car maker tweeted Tuesday by Chairman and Chief Executive Elon Musk.

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Musk pledged that the cuts would not hurt the automaker’s ability to meet the goals and said they involved no factory workers, which the company is still looking to hire.

He called the job cuts “difficult, but necessary” as the company tries to become profitable, but he did not provide an estimate for how much they would save.

It's not the first time Tesla has laid off workers. The company let go 400 to 700 workers last fall after completing annual performance reviews, and it laid off a small number of workers in 2008.

In May, Musk announced that he was reorganizing the company by "flattening the management structure" with the goal of improving “communication, combining functions where sensible and trimming activities that are not vital to the success of our mission."

Musk did not define at the time what “flattening” means but typically it refers to trimming layers of middle management. Musk said in his Tuesday email that the company has “grown and evolved rapidly” over the last several years, resulting in duplication of some job functions, and that the layoffs partly reflect the restructuring.

Tesla has never turned an annual profit in its 15 years of doing business and has posted only two quarters of net profits. But at the company's annual shareholder meeting June 5, Musk said he expected the company to post profits during the July-to-September and October-to-December periods.

Still, he said in his employee email that the layoffs were primarily driven by Tesla’s motivation to “accelerate the world’s transition to sustainable, clean energy.”

“We will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable,” the email said. “That is a valid and fair criticism of Tesla’s history to date.”

Tesla has spent heavily on technology, manufacturing plants and an extensive car-charging network as it has rolled out its vehicle fleet, which Musk wants to expand by adding a semi, pickup truck and a crossover in the coming years.

But crucial to that success is the Model 3, the company’s first mass-market car, which can top $50,000 with options. The company said a $35,000 version is in the works.

The manufacturing process, however, has been plagued with problems, including the installation of cutting-edge robotics that slowed instead of speeded up production. At the company’s shareholder meeting, Musk suggested that Tesla had worked through many of the problems and was producing 500 cars a day, or 3,500 a week.

Consumer Edge Research analyst James Albertine wrote in a note to investors Tuesday that he views the restructuring and layoffs “as a positive in helping Tesla track toward profitability later this year.”

He wrote that reaching Musk's Model 3 production goal of 5,000 vehicles a week by the end of June is still the primary driver of profitability.

“A focus on ‘getting lean’ is a positive with respect to Tesla's guidance for achieving consolidated profitability in 2018, in our view,” he wrote.

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The company ended last year with 37,543 employees, more than 12 times its head count five years earlier.

Some of those additional workers were brought on board when Tesla acquired SolarCity Corp., the nation’s largest solar panel installer, in a $2-billion deal in 2016.

Musk’s email also said Tesla is not renewing its agreement to sell solar panels through Home Depot. The majority of Tesla employees assigned to the sales effort will have an opportunity to work at Tesla’s own retail outlets, Musk said.

Workers who are being laid off are being offered “significant salary and stock vesting,” he said, adding the company was “making this hard decision now so that we never have to do this again.”

Musk, 46, who survived an effort at the annual shareholder meeting to oust him as chairman, said he decided to publicly tweet the text of the email because it had been leaked anyway.

Tesla shares dropped on the news. They were up 6.9% in early trading Tuesday but ended the day up $10.67, or 3.2%, to $342.77.

Bloomberg and the Associated Press contributed to this report.

5:05 p.m.: This article was updated throughout with additional background and details.

1:20 p.m.: This article was updated with comments from analyst James Albertine.

12:30 p.m.: This article was updated with additional background on Tesla’s restructuring efforts.

Noon: This article was updated with additional background information and a stock update.

11:35 a.m.: This article was updated with Tesla’s stock movement.

11:20 a.m.: This article was updated with additional details from Elon Musk’s email.

This article was originally published at 11:05 a.m.

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