Tesla (NASDAQ: TSLA) will be laying off 7 percent of its full-time workforce, according to a letter posted online by CEO Elon Musk. The move will affect more than 3,000 of the company’s nearly 45,000 employees. According to the letter, Tesla will only retain the most critical temps and contractors.
This is not the first round of layoffs for Tesla employees. Last June, the company announced that it would be reducing its workforce by 9 percent. Despite that reduction, the company actually increased its headcount by 30 percent last year. The company had roughly 37,500 employees at the end of 2017.
Musk says in the letter that the staff reductions are needed to reduce the amount it costs to manufacture its Model 3 vehicle. While the cheapest version of the car currently costs $44,000, Musk is determined to get that cost down to $35,000 this year. Reducing the cost is seen as critical for mass market adoption of the car.
The layoffs are coming as a surprise to many as Tesla posted a surprise profit of $312 million in the third quarter. That represented a 4 percent increase over the same quarter a year ago. Tesla is predicting a smaller profit for the fourth quarter of its fiscal year. Wall Street analysts expect a year-over-year rise of 3 percent for the fourth quarter.
Tesla has run into some problems as it has ramped up its Model 3 production. The cars have become less attractive to buyers as the U.S. federal government has slashed a tax credit for Tesla buyers from $7,500 to $3,750. That tax credit is expected to fall to $1,875 in the second half of this year and be eliminated by 2020. Tesla has already slashed the prices of its Model S, Model X, and Model 3 variants in response.