Tesla told 9 percent of its 46,000-employee workforce on Tuesday that it will cut salaried positions in a reorganization measure that will affect 4,100 jobs. These cuts came after the Palo Alto, California-based company added 8,000 jobs at the start of the year.
The cuts were looming as Tesla CEO Elon Musk warned employees in mid-May that the company would undergo a thorough reorganization measure that would include flattening its current management structure. Musk tried to put current employees at ease, promising that company growth lies ahead and hiring will commence.
“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,” said Musk in a letter to employees. “I also want to emphasize that we are making this hard decision now so that we never have to do this again.”
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
Despite Musk’s positive spin, market analysts are not so certain that this latest cost-cutting measure will make way for future profits. Tesla continues to deplete its cash reserves, spending money on its assembly line and prepping for projects like the Model Y crossover all-electric vehicle.
“I don’t think if Tesla becomes profitable in Q3 and Q4, that will be sustainable because of ramping up of the production,” said Efraim Levy, an analyst at CFRA Research. “The layoffs may help them to achieve profitability in the near-term but not sustain it.”
Tesla-Heavy ETFs React Positively
ETFs with heavy exposure to Tesla all reacted positively by the close of the market. ARK Industrial Innovation ETF (NYSEArca: ARKQ) was up 0.77%, VanEck Vectors Global Alternative Energy ETF (NYSEArca: GEX) was up 0.48%, First Trust NASDAQ Clean Edge Green Energy Index Fund (NYSEArca: QCLN) was up 0.90%, and ARK Innovation ETF (NYSEArca: ARKK) was up 0.87%.
“The pressure is on for Tesla to cut the red ink as the third quarter approaches,” said AutoPacific analyst Dave Sullivan. “Cutting your way to profitability as you try to grow and launch vehicles is very difficult. It’s hard to believe Tesla had enough fat to trim in their salaried ranks. I expect Musk to push and pull more levers in the next few months as the push for profits continues.”
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