The across-the-board cutbacks, which almost entirely involve salaried workers at Tesla’s California headquarters and beyond, are an admission that Musk’s ambition has at times exceeded the financial realities of building a car company from scratch.
In addition to spending more on righting ship with the Model 3 sedan, the company will have to shell out billions of dollars to build new car and battery factories in China and Europe -- not to mention on delivering a new crossover, sports car and semi-truck in the coming years. Goldman Sachs Group Inc. analysts said last month that Tesla may need to tap capital markets for more than $10 billion in funding by 2020.
“Given that Tesla has never made an annual profit in the almost 15 years since we have existed, profit is obviously not what motivates us,” Musk wrote in an internal email Tuesday. “What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable. That is a valid and fair criticism of Tesla’s history to date.”
Tesla shares pared an earlier gain of as much as 6.9 percent and closed up 3.2 percent at $342.77. Since it started trading in 2010, the stock has risen at a blistering pace driven by optimism that Tesla would lead a new era of transportation innovation. In the past 12 months, amid production snags and debt-related jitters, shares have fallen 4.5 percent, while Ford Motor Co. and General Motors have climbed.
No production associates are included in the job cuts, and Tesla’s ability to reach its Model 3 targets in the coming months won’t be affected, Musk wrote. He said Tesla’s rapid growth in recent years led to duplicated roles and jobs the company could no longer justify. Tesla ended last year with more than 37,500 employees, 12 times its headcount five years earlier.
In addition to carrying out the staff reorganization, Tesla won’t renew a residential sales agreement with Home Depot Inc. and will focus instead on selling solar power in its own stores and online, Musk wrote. That’s a reversal from earlier this year, when Tesla-branded selling spaces started rolling out at 800 Home Depot locations.
Mass job cuts aren’t completely unheard of at Tesla. The company dismissed about 700 people last year who Musk said failed to meet annual performance reviews. SolarCity’s workforce also was significantly pared back amid Tesla’s acquisition of the company in 2016. It finished that year with about 3,000 fewer employees than it had at the end of 2015.
The latest firings may lead Tesla to take a charge of as much as $150 million for the quarter ending this month, Gene Munster, a managing partner at venture capital firm Loup Ventures, wrote to clients Tuesday. The move could save the company about $80 million a quarter in operating expenses going forward.
“In the context of the company’s high cash burn rate, $80M per quarter may not sound like enough to have an impact,” Munster said. “But as the next several months may decide the fate of the company, every dollar counts.”
Tesla will provide significant salary and vesting stock to employees being dismissed, Musk wrote in his memo. One employee who didn’t want to be identified said Tesla offered to pay his salary until mid-August and health and stock vesting until early September.
“I would like to thank everyone who is departing Tesla for their hard work over the years,” Musk said. “I’m deeply grateful for your many contributions to our mission. It is very difficult to say goodbye.”