Electric car maker Tesla is cutting several thousand jobs across the company as it seeks to reduce costs and become profitable without endangering the critical production ramp-up for its Model 3 sedan.
Tweeting pictures of an email he said had been leaked to media, Musk said that the cuts were part of a simplification of Tesla’s management structure promised last month.
“As part of this effort, and the need to reduce costs and become profitable, we have made the difficult decision to let go of approximately 9 percent of our colleagues across the company,” the email read.
“These cuts were entirely from our salaried population and no production associates were included, so this will not affect our ability to reach Model 3 production targets in the coming months.”
Difficult, but necessary Tesla reorg underway. My email to the company has already leaked to media. Here it is unfiltered: pic.twitter.com/4LToWoxScx
— Elon Musk (@elonmusk) June 12, 2018
Tesla’s latest annual filing last December showed it had 37,543 full-time employees.
Tesla has been trying to hit a 5,000 per week production target of its Model 3 sedans after facing initial production hiccups. Last week, Musk said the carmaker should achieve its target by the end of June.
Shares (TSLA) rose as much as 7 percent and were last up 3.6 percent at $344.18.
The layoffs mean there likely will not be more job cuts in the near-term, said Efraim Levy, analyst at CFRA Research, adding that Tesla will likely raise capital early in 2019.
“I don’t think if Tesla becomes profitable in Q3 and Q4, that will be sustainable because of ramping up of the production. The layoffs may help them to achieve profitability in the near-term but not sustain it.”
Tesla has been burning through cash as it continues to spend on its assembly line and prepares for new investments on projects such as the Model Y crossover and its Gigafactory.
Free cash flow, a key metric of financial health, widened to negative $1 billion in the first quarter from negative $277 million in the fourth quarter, excluding costs of systems for its solar business.
Several Wall Street analysts anticipate a capital raise this year despite Musk’s statements that it will not be necessary due to profitability and positive cash flow in the third or fourth quarters.
Tesla said it began notifying impacted workers on Tuesday and would continue to do so throughout the week. A spokesman said it would reduce overall employment back to around 37,000 – roughly in line with numbers at the end of last year.
Musk also said that Tesla had decided not to renew a residential sales agreement with Home Depot (HD), and would focus instead on selling its solar products through its own stores and website. The company will seek to re-employ most Tesla employees at Home Depot stores at its own locations.
Musk told employees in May that the company was undergoing a “thorough reorganization” as it contends with production problems, senior staff departures and recent crashes involving its electric cars.
At the start of April, the company’s shares had fallen by around 35 percent from a peak hit last September but signs that it is on course to meet an output target of Model 3 cars have wiped out almost all of this year’s losses.
Meanwhile, the surging share price for Tesla this month has slammed short-sellers of the stock with more than $2 billion in losses on paper so far in June, according to financial analytics firm S3 Partners.
Tesla shares are up 20.5 percent in June, on pace for their biggest monthly gain month since August 2014, boosted by optimism the company can meet production targets for its Model 3 sedans.
The sharp gains have caught short-sellers in a tough spot, putting their mark-to-market losses for June to $2.09 billion, S3 data showed.
Short-sellers aim to profit by selling borrowed shares with the hope of buying them back later at a lower price.
“In all of 2017, they (short-sellers) were down $3.4 billion. To lose $2 billion in a month, stands out as one of the biggest losses for a stock that I have seen,” said Ihor Dusaniwsky, head of research at S3 in New York.
With Tesla shares up about 2 percent in late afternoon trading on Tuesday, shorts were down $278 million in mark-to-market losses, in addition to $549 million in losses on Monday, said Dusaniwsky. That makes it the worst performing stock for short sellers this year, he said.
On Tuesday, Tesla shares rose as much as 6.9 percent to a 3-1/2 month high of $354.97, before paring gains on news that the electric carmaker would cut 9 percent of its staff, or several thousand jobs, across the company as it seeks to reduce costs.
Tesla short interest stands at $12.6 billion, with 37.9 million or nearly 30 percent of the share float, sold short, according to S3 data.
Shares of heavily shorted companies can at times get pushed higher as traders rush to buy stock to cover their short bets, triggering what is known as a ‘short squeeze.’ That has not happened so far for Tesla, according to S3 data.
There has only been a small drop in the number of shares sold short in June.
“With almost 80 million shares traded in June this slight short covering did not move Tesla’s stock price,” said Dusaniwsky.
“This is the biggest cry wolf on Wall Street – everyone says short squeeze, and it never is. They will be right one day, but not today,” said Dusaniwsky.