2017 Tesla Model 3, in photo tweeted by Elon Musk on July 9, 2017
Tesla, it seems, is not out of the woods yet, despite selling almost 250,000 electric cars last year.
Even as the company continues to try to ramp up production of its most popular and affordable Model 3, Tesla CEO Elon Musk announced on Thursday evening that the company will lay off another 7 percent of its full-time employees. "We grew by 30 percent last year, which is more than we can support," he said.
The layoffs are expected to hit about 3,200 workers. In a public letter to employees, Musk also said the company will only keep the most critical temps and contractors.
The move comes after Tesla laid off 9 percent of its workforce last June even as it scrambled to reach Musk's long-standing production target of 5,000 Model 3s a week.
While Tesla has begun cranking out enough Model 3s to overtake most other luxury automakers, it still hasn't reached the magic 5,000-cars-per-week number over time. In the fourth quarter, Tesla built about 4,700 Model 3s per week—and that's of course including a new line assembled last year in a tent in the factory parking lot.
Tesla Model 3 all-wheel drive Performance rolls off a new assembly line in a temporary structure
Musk has said the company needs to reach a volume of 5,000 Model 3s per week for five to six months before it can afford to sell the base, $35,000 version of the car, which may have a shorter-range battery pack, no Autopilot, no glass roof, no power seats, and a non-leather interior.
The company originally had a waiting list of over 400,000 depositors who planned to buy the Model 3. After selling almost 146,000 in 2018, many of those depositors have not yet submitted an order for the car, indicating that they may be waiting for a cheaper version.
Tesla met them halfway in November with the introduction of a Mid Range model with an estimated 264-mile range that sells for $45,200 to start.
Federal plug-in vehicle tax credits for Tesla buyers have also begun to wind down after Tesla sold its 200,000th car last July. Through June, U.S. buyers will be eligible for a $3,750 tax credit; later in 2019, it will drop to $1,875. Tesla cut prices across the board by $2,000 to make up for the $3,750 drop in the tax credit.
Next month, it plans to begin selling the Model 3 in Europe to make up for an expected sales drop in the U.S.
In announcing the layoffs, Musk acknowledged that the company will have to continue to ramp up Model 3 production. "Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months," he said in the letter announcing the layoffs. "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 $35,000 and still be a viable company."
Following the layoffs and restructuring last June, Musk set an even higher target for Model 3 production of 6,000 cars a week for the company to remain profitable.
In the same letter, Musk said he expects the company to eke out a smaller profit in Q4 than it did in Q3. That could be because the company had a large debt payment come due in November, and is facing more debt payments in the coming year.