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Tesla to cut 9% of jobs in 'difficult but necessary' reorganization
Tesla will cut approximately 9 percent of its 46,000-person workforce.
Cuts will focus on salaried positions, leaving hourly factory jobs intact.

Robert Ferris | Lora Kolodny

CNBC.com

1 Hour Ago | 01:29

Tesla told employees Tuesday it will cut about 9 percent of its workforce, trimming mostly salaried positions.

Since the start of the year, Tesla has added roughly 8,000 jobs and currently employs approximately 46,000 workers. Through this reorganization, it will shed about 4,100 jobs.

In mid-May, Tesla CEO Elon Musk had warned the company was undertaking a "thorough reorganization" and that it would flatten its management structure.

"To be clear, Tesla will still continue to hire outstanding talent in critical roles as we move forward and there is still a significant need for additional production personnel," Musk said in a letter to employees on Tuesday. "I also want to emphasize that we are making this hard decision now so that we never have to do this again."

Musk echoed this sentiment in a tweet he sent Tuesday, saying the cuts were "difficult, but necessary."

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CFRA analyst Efraim Levy took the news as a sign Tesla is maturing and prioritizing profitability.

"There is a normal ebb and flow of hiring and firing in a business," he said. "Nine percent is a big chunk to do at once, but there comes a time when a company grows up and they have to cut out the fat to become more efficient."

Ahead of the layoff announcement, Tesla shares had been trading up 5 percent and the stock was on pace to show its best month since February 2014. After the news, the stock gave up some of its gains, but was still on pace for its third-straight day of gains.

While sentiment has been warming, at least as far as the stock is concerned, Tesla has recently shown signs of being a company in turmoil. It has been burning through billions of dollars as it tries to scale up production of its Model 3 sedan, Tesla's lowest-priced vehicle and its first attempt at making a car for the mass market.

It has been criticized for missing production targets, even after these goals were revised. Tesla currently is trying to reach a production rate of 5,000 Model 3 cars in a single week by the end of this month.

Separately, Musk has said he expects Tesla to be profitable and cash flow positive in the third quarter. But some analysts think the company will need to raise more capital by the end of the first quarter of 2019.

The company has also seen quite a bit of turnover in its ranks, and several senior executives have left over the last several months.

Also disconcerting, has been Musk's combative attitude toward Wall Street and the press, which rose to a head during its first-quarter earnings conference call.

But in recent days, there has been a growing conviction that Tesla is making progress on Model 3 production. On Monday, KeyBanc Capital Markets analyst Brad Erickson raised his second-quarter Model 3 delivery estimate to 30,000 from 20,000, based on conversations with staff at Tesla stores.

Tesla has grown rapidly in recent years. Even with the work force reductions announced Tuesday, Tesla will still employ more people now than it did at the end of 2017.

In its email to employees, Tesla noted that there had been some duplication of roles and job functions as it scaled quickly. Those are the areas that will be targeted with cuts.

Tesla said no production associates were impacted by the restructuring.

The company also has decided not to renew its residential sales agreement with Home Depot as it focuses its efforts on selling solar power in Tesla stores and online.

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In regards to Home Depot, it is a huge commitment in inventory to be on their shelves plus profits are "locked in". Elon is wanting to go a more direct marketing model through their stores and online as competition is heating up and profit potential is tightening in the solar market. There have been several interesting breakthroughs in solar panel efficiency that now exceed the 25% efficiency benchmark while production costs continue to decline. The market is becoming more and more competitive - that translates to lower and lower margins. This is generally not good for a US based manufacturing company with our high production costs.

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You can purchase 22 watt + capable panels made in China for 20% less (or more) than what Elon is peddling here. His batteries are better, but at what cost?