By on January 18, 2019

tesla model x, Image: Tesla Motors

The automaker may have worked out production bugs and finally turned a profit late last year, but 2019 is off to a rocky start for Tesla. In an email to employees Friday, CEO Elon Musk said he’ll thin the company’s full-time ranks by 7 percent, warning of a “very difficult” road ahead.

The news comes hot on the heels of a slew of cost-cutting measures, including the elimination of various trim configurations and this month’s culling of 75D base models — a move that leaves only the top-flight 100D versions of the Model S and X in Tesla’s stable. Thursday brought word of the scrapping of company’s long-running customer referral program, prompting tears in the Tesla-boosting blogosphere.

All of this throws Musk’s promise of a true “people’s car” by this summer into doubt.

In his email, following an introductory morale-boosting exercise, Musk laid the company’s financial position bare. The slim profit reached in the third quarter of 2018, he said, was only achieved by selling high-zoot variants of the Model 3.

“This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit,” he wrote.

“However, starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles. Moreover, we need to continue making progress towards lower priced variants of Model 3. Right now, our most affordable offering is the mid-range (264 mile) Model 3 with premium sound and interior at $44k. The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making our car $1,875 more expensive, and again at the end of the year when it goes away entirely.”

All of that to say that boosting revenue isn’t enough. Cuts will need to be made to keep Tesla stable.

tesla model 3

The company has “no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors,” Musk wrote. “Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months.”

Without the cuts, Tesla’s hope of delivering on its promise of a $35,000 Model 3 — a variant which garnered praise as the Earth’s eventual savior during its 2016 launch — falls flat. Since the Model 3’s debut, Chevrolet and Nissan have come to dominate the low-priced EV field.

 

Musk said in October that a standard battery Model 3 boasting 220 miles of range and a $35k entry price was impossible, estimating its arrival within six months. It’s now looking like the base Model 3 might face another pushback.

As it ramps up Model 3 production at its Fremont, California assembly plant, Tesla broke ground earlier this month on its new Shanghai vehicle and battery plant — a plant which will require no shortage of funding. A trade dispute and China’s softening auto market also hit Tesla hard in the latter part of 2018.

As mentioned before, part of Musk’s “triage” approach to financial stabilization involves the jettisoning of the company’s perk-laden referral program, which Musk said is “adding too much cost to the cars, especially Model 3.” That program dies at the end of the month.

 

[Images: Tesla]

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55 Comments on “Tesla Slashes Workforce, Kills Referral Program in Ongoing Search for Cash...”


  • avatar
    dukeisduke

    Is this the first Tesla Deathwatch article?

    • 0 avatar
      Vulpine

      Nope. Nor will it be the last.

      Problem is, too many people panic on too little information. A 7% reduction in manpower isn’t unusual and now that the Model 3 assembly lines are running more smoothly, a reduction had to be expected. I would estimate that saves the company about $135million in wages plus the savings from reducing the number of different components needed for those discontinued trims and improving economy of scale for remaining components. I’m thinking the 75kWh models were seeing lower sales as the new Model 3 can get better range with a smaller battery. As far as physical size, the Model 3 isn’t THAT much smaller than a Model S.

      • 0 avatar
        JohnTaurus

        You’re 100% right: this wont be the last Tesla deathwatch article. The bad news just keeps on coming, and no amount of spin and/or justification by the Koolaid drinkers can mask it.

        I was rooting for Tesla before all the apologists and pompous fans turned me around. Thanks, guys.

    • 0 avatar

      You have to be kidding. Your hopes are in vain. I see nothing but upward trajectory. Elon behaves opposite to Big Three management.

  • avatar
    28-Cars-Later

    “Chevrolet and Nissan have come to dominate the low-priced EV field”

    But Chevy and Nissan actually profiting on those models?

    Tesla dominates this small market but it’s still not enough, even with 100% of said market at all price points would it be enough?

  • avatar
    Land Ark

    It seems to be a trend right now to tighten up. GM being the first big name to do it. My company, which is quite large, introduced a “Transformation” initiative to all of us at the same time earlier this week. It pushed an app to our ipads and phones that links to the site that was created for it. The message has been that it will be exciting and beneficial. It’s one step short of throwing a party. They have hired a consulting firm to review everything and find ways to be more efficient. The sheer amount of positive buzz words has led me to think a lot of people are in serious trouble. Results of the initiative will be released and start to be implemented in May. The word “leaner” has been mentioned many times in the Q&A section of the website.

    I would guess that most other companies will soon follow suit in 2019.

  • avatar
    cicero1

    Time to give up on being all things to all electric vehicles – Tesla should just focus on what it is positioned to be – the electric BMW.

    • 0 avatar
      1500cc

      @ cicero1

      You’re suggesting Tesla should drive downmarket in search of volume, try to fill every niche possible, and gradually devalue its brand?

    • 0 avatar
      SCE to AUX

      Tesla can’t survive on Model S and X alone. They’ve stated all along that the company’s future hinges on Model 3, and it already outsells the other two models by almost 3:1 combined.

      They absolutely must become profitable with the Model 3 – especially the low-end version.

  • avatar
    indi500fan

    Based on Tweater, it sounds like poor initial quality combined with a service network sized for the S model volume is making for a lot of unhappy 3 Model customers.

    • 0 avatar
      EGSE

      “with a service network sized for the S”

      That’s an excellent observation. I’ve long wondered how Tesla was going to handle distribution and service when they transitioned from a boutique to a mainstream auto company. I don’t follow the company closely and have no clue if there are plans or funding allocated to handle the now higher volume of cars out there.

      A friend-of-a-friend has a Model S P90D. Last year he hit some debris and damaged the underside of the car (the battery compartment wasn’t breached). It took over a month to get parts and weeks more for the work to get done.

      • 0 avatar
        trackratmk1

        The Aftersales department, if they even have one, has been a disaster for them. The early adopters were willing to put up with inconveniences in the dealer/service network, but at scale with the Model 3 the more average joe who bought a $40k or $50k version as their only car won’t have the same patience.

        • 0 avatar
          nwfmike

          There is a manager in the cubicle next to mine that traded his BMW i3 for a Model S. He’s been gloating and strutting around like a proud papa. That’s his DD and I’m waiting to see what happens if his car sustains any damage or has some other issue.

    • 0 avatar
      SCE to AUX

      They haven’t ignored scaling the service network, but I doubt it has kept up with the size of the fleet.

      • 0 avatar
        indi500fan

        DD >> daily driver, your everyday ride (as compared to maybe a sports car you only bring out of the garage on nice weekend days)

      • 0 avatar
        civicjohn

        You can see in the financials that the Super Charger network and Service centers are not growing at the pace promised by Musk. This will certainly be a problem in Europe as they ramp up deliveries.

        Oh, and they just jacked up the price of electricity globally where now in some markets if you get 25-30 MPG in your ICE car it’s cheaper than driving a Model 3.

    • 0 avatar
      SPPPP

      If you want to destwoy my Tweater … Pull this thwead, puddytat.

  • avatar
    dividebytube

    You know I’m a good candidate for a 3, given I rarely drive out of state or longer than 2-3 hours. But I sure wish it was a better looking car.

    The S I like (but not love) but the 3 is just … meh.

  • avatar
    TDIandThen....

    How interesting. I had my first taxi ride in a Model s last night coming home from the airport. Seat was hard and suspension gave me every pothole – it was like being punched in the bum the whole way. The taxi driver said as a taxi they weren’t great, the squeaks and rattles drove him a little crazy. Lots of little constant repairs.

    Not truly surprised at this news but I hope the company continues to improve. Firing their loudmouth CEO at some point soon would be a good idea too.

    • 0 avatar
      conundrum

      But then there wouldn’t be weekly dramas from the drama king if they let Musk go. Car websites would lose traffic. Business columns by the chronically technologically inept advising on stock purchases would have their ready source of guff to chew on eliminated. Can’t have that. Juggled balls must remain in the air at all times.

  • avatar
    APaGttH

    There will never be a $35K Model 3.

    Battery costs may be going down but other costs for labor, insurance, taxes, raw materials, etc. are going up.

    Each time it is pushed it ironically gets harder to achieve.

    • 0 avatar
      jpolicke

      Agree. The only $35,000 Tesla you’re ever going to see will be a used one.

    • 0 avatar
      MoDo

      And lets not fool ourselves into thinking $35,000 is cheap either. While electric, the car is on the same playing field as a Mazda 3 when down to brass tacks. A car that can be purchased for half the price.

      • 0 avatar
        SCE to AUX

        “the car is on the same playing field as a Mazda 3”

        That’s the first I’ve heard that one. That’s like saying a Bentley can’t get me to the grocery store any better than a Mirage, so why bother?

        The Model 3 is nothing like a Mazda 3. I’d argue the Mazda’s quality is actually better, but the driving experience of the Model 3 is definitely not on the same playing field as a Mazda 3.

        What “brass tacks” are you measuring these cars by?

        Model 3 to Mazda 3: “Senator, I served with Jack Kennedy. I knew Jack Kennedy. Jack Kennedy was a friend of mine. Senator, you’re no Jack Kennedy.”

        • 0 avatar
          indi500fan

          Looking at the size specs, it seems to me like a Tesla 3 sort of slots in between the Mazda 3 and 6. And given all the stories about thin paint and lack of paint coverage, probably will rust worse than the Mazdas.

  • avatar
    Rnaboz

    prompting tears in the Tesla-boosting blogosphere.
    As in crying or ripping it to shreds?

    s/

  • avatar
    mor2bz

    The plan was to start out with the super fast luxury models to prove the
    viability of the concept and to create a buzz. With that done, why did he not eliminate those models and concentrate on the Model 3? Instead he
    wanders off into fantasyland with a Y, a Semi, and a Boring Tunnel.

    Without that BS, would there not be money to pay a full workstaff? Would not bringing cars to deposit owners on time bode well for the company? He claims in his pinkslip statement to his employees that “this is the only way forward”. How about kicking in a few bucks of his own if he is so concerned about the planet?

    A wise businessman (and friend) once said “If you cannot pay people well, you can at least treat them well”. Musk has failed here too.

    Maybe he feels justified now that Ford and GM are downsizing. The investors think this latest move to be boneheaded, and so do I.

  • avatar
    trackratmk1

    Interesting that Musk is all but admitting he can’t make a profit on the Model 3 alone, especially at the mythical $35k price point. If that car can’t sustain the business, what will? The Model S is tired and old with no replacement in sight. It seems that Tesla put all their eggs into the launch basket and forgot that they needed to run a business after their initial moonshot landed.

    • 0 avatar
      EGSE

      The profit margin on the Model 3 is less than the S and X but the after sale cost per unit doesn’t comparably scale downwards. This could be a very big and potentially intractable hurdle for Tesla.

    • 0 avatar
      SCE to AUX

      “If that car can’t sustain the business, what will?”

      Nothing. Tesla has said all along that the Model 3 is vital to its future. The other cars were merely a starting point.

  • avatar
    Tstag

    Just to put this in context JLR currently make 12 models with the same sized workforce. They have also launched an electric car and expanded rapidly over the last few years. My point here is to compare an established car maker to Tesla and to point out that Tesla is 4 time less efficient than one of its relative peers.

    • 0 avatar
      dukeisduke

      That’s because Tesla makes cars, but isn’t an auto manufacturer – they don’t have the know-how or experience. It’s like they’ve never heard of a refresh cycle. They should already be on the second generation of the Model S. They’re like a high-tech version of Checker.

  • avatar
    redapple

    Autoline Sandy Munro says, Tesla 3 Body Chief Engineer.
    -Didnt know what he was doing.
    -Real bad job.
    -Bad panel gap / fit.
    (Paraphrase)
    Rest of the car good
    Driving it is Great !

  • avatar
    dukeisduke

    I don’t want Tesla to die, but I don’t see them sticking around for along time, unless huge changes are made, and/or they go into an alliance with some established manufacturer.

  • avatar
    volvo

    This is the first I was aware of the Tesla referral program.

    Referral marketing incentives certainly will not reduce the enthusiasm of brand owners. Seems OK to me as long as the referer gives full disclosure of their incentives along with the referral.

    • 0 avatar
      civicjohn

      Mr. Fred over at Electrek pawned off enough referral codes to get 2 of the new Roadster.

      They ultimately have given away 80 Roadsters with the referral program, leading more credence that it will never see the light of day.

  • avatar
    SCE to AUX

    The drama continues. It was this kind of stuff that made me cancel my Model 3 reservation almost a year ago, and then balk after test-driving one.

    Mr Musk needs to go.

    No regrets about passing on the Model 3 in favor of the Hyundai Ioniq EV. Its build quality and function are tops.

  • avatar
    CarnotCycle

    Seems depositors aren’t getting their base $35k Model 3’s because Elon doesn’t/can’t write off the several thousand dollars a pop in losses they’d book moving 500,000 Model 3’s at $35k.

    Not only does fulfilling each base Model 3 lead to a cash write-off, but it also displaces the revenue from a new Model 3 sale at ~$50k, which is operationally profitable (I’d bet) to make.

    So basically if Elon sells the cars his most loyal customer base plunked money down for sight unseen, Tesla flatlines.

    Secretly I bet the guy wishes all the depositors would get their $1000 back then turn around and buy $50k Model 3’s.

  • avatar
    JoDa

    “a variant which garnered praise as the Earth’s eventual savior during its 2016 launch”

    By Who?

    Tesla, like Apple, is a cult. The problem with the Tesla Cult is they won’t pay Apple prices.

    Tesla should be profitable in China cuz the Chinese government has more, and bigger guns to their citizens heads.

  • avatar

    they can’t survive without the tax credit.

    goodbye.

  • avatar
    TimK

    Keep an eye on former Apple VP Bob Mansfield— he is someone who could step in and fix the mess that Musk created. His last gig was “right-sizing” the out of control R&D car project that Apple was throwing money at, so he is well versed in the industry and technologies.

  • avatar
    danio3834

    Tesla should stick to being a high end boutique brand instead of trying to conquer the world with a “people’s car”. Regular automakers have a hard enough time keeping profits on conventional cars, and Tesla has the brand power to command a high price where they actually stand a chance to make some money.

    Forget the $35,000 M3, or even a <$50,000 M3. Making up per unit losses with volume is a sure way to work yourself into BK.

    • 0 avatar
      Vulpine

      Tesla will most certainly build at least one batch of those “minimum” models, just to keep their promise. If anyone bothers to look back, you will find that Tesla made a similar promise for the Model S and yes, kept that promise for as long as sales held out. They quickly realized then that nearly every customer wants upgrade options so very few of the lowest-priced Model Ses actually sold. So they made the next higher model their base model, until those stopped selling. I expect that’s one reason why they’ve now stopped selling the S-75.

  • avatar
    volvo

    @danio3834

    Best comment I have seen on this subject. I agree. Be Porsche before they were absorbed into VW group.

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