Thursday , June 24 2021

Tesla's mass cuts and reduced car production are in Wall Street panic

Electronic automotive giant Elon Musk said on Wednesday he has cut production for some of his most expensive cars after his second mass layoff for seven months, fueling concern about the company's ability to survive without making so many of the best dollars that helped him become a household name.

Tesla said it has broken production hours for its Model S sedan and X-type SUV in its only car manufacturing factory, which is a rare hurdle for a company that has become one of America's most valuable automotive manufacturers, partly the rapid production of battery cars. Tesla's shares fell by about 4% on Wednesday.

The downgrade will help transfer Tesla's production to the more profitable luxury cars that helped develop the automotive industry and further to its cheaper model 3 that the company has long promised to be key to attracting a mass market audience .

But Tesla has been struggling for months to tackle the production, cost and supply issues around Model 3, and Musk said the company could not sell the car at the highly anticipated $ 35,000, while remaining profitable. Wall Street analysts said the company has not yet proven that it could lose those premium sales and still operate in a competitive market.

"While the strategy … to reduce the cost of the low end has good intentions, we believe Tesla has underestimated the cost curves and the production side of the equation," said Joseph Spack, analyst at RBC Capital Markets. Thirty-four months after Tesla promised $ 3,000 Model 3, "the car still does not exist."

Tesla has made changes, but some doubt whether they are sufficient. Photos / Getty Images.
Tesla has made changes, but some doubt whether they are sufficient. Photos / Getty Images.

Last week, the company fired about 7 percent of its full-time employees and all, except for "the most critical (temporary workers) and contractors," Musk said in an email to the company. A Tesla official said the redundancies are all across the organization, which probably affects sales and production staff.

These thousands of job cuts come only seven months after Tesla has freed another 9% of its workforce. Employees of the factory are critical to the company, where last year, too much attention to the cars was creating the expensive delay in what Musk called Tesla's "manufacturing hell." "People are underestimated," he wrote last spring.

Musk said the redundancies are crucial to helping the company save money as it deviates from selling the more expensive, more profitable cars that have helped keep it on the surface. Earlier this month, Musk announced that the company would stop selling the cheapest versions of the S and X models by effectively setting base prices for the two models at more than $ 90,000 and helping the company distinguish high-quality cars from the cheaper and a lower model 3,

The cheapest model 3 today starts at about $ 45,000, about $ 10,000 more than the typical new car sold in the US. Additionally, the company faces a growing challenge in producing affordable electric cars at a time when major carmakers such as General Motors are speeding up the production of electric competitors who can compete with Tesla's price, size and style.

The company said in a statement on Wednesday that absorption was due to improvements in the factory's performance and would "give us flexibility to increase our production capacity in the future if necessary."

Tesla won a record quarterly profit last year, but Musk warned this month that his last quarter would "only make a small profit" with great difficulty, effort and luck. The company will offer more details when it reveals its latest quarterly financial report next week, a spokesman said.

"Everything we see with Tesla's behavior last month shows that they do not want to build their future on high-end cars," said Jin Munster, Managing Partner of Loup Ventures. "The real chance is to hit the sweet spot of the curve, at $ 35,000, and they are far from today."

– "Washington Post"

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