Arthur J. Villasanta – Fourth Estate Contributor
Palo Alto, CA, United States (4E) – Tesla, Inc took drastic action to stem its hemorrhaging billions of dollars by laying-off thousands of workers, but apparently not many of those on the production line of its troubled Tesla 3 luxury, all-electric sedan. The job cuts announced yesterday should reduce Tesla’s costs, allowing the company to reach profitability more easily.
Those laid off account for nine percent of Tesla’s workforce, said CEO Elon Musk in a memo to staff. Tesla had 37,500 employees at the end of 2017. Nine percent of this total amounts to some 3,400 employees. Tesla fired hundreds of workers in the fall of 2017.
“We are a small company in one of the toughest and most competitive industries on Earth,” wrote Musk. He argued that cost cutting was necessary to turn Tesla into a sustainably profitable company.
The layoffs are “almost entirely” in salaried positions and won’t impact Tesla’s efforts to increase Model 3 production, said Musk.
The firings come a month after Musk announced a change in Tesla’s organizational structure. Musk intends to flatten the management structure to make the firm less bureaucratic.
Financial analysts, however, blame the layoffs squarely on the company’s financial indiscipline, which is a liability as a start-up in a capital-intensive business. Tesla is infamous for lavishly spending since it its founding in 2003. The company has only had a positive cash flow and profits for only two brief periods in the last eight years: one in late 2013 and another in mid-2016.
Tesla, however, had the ruinous habit of boosting production of car models after these upticks. It did so in the case of Model X and then the Model 3, resulting in a spike in losses. Production numbers for the Model 3 are way below that predicted by Tesla, which led Goldman Sachs last month to urge Tesla stockholders to sell.
The lay-offs won’t enable Tesla to attain its cherished goal of reaching sustained profitability by the third quarter of this year. That prediction was greeted with scorn by many analysts.
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