Tesla Stock Tanks On Musk's Job Cuts Email, But Is TSLA Still A Buy?

Tesla (TSLA - Free Report) stock tanked 13% Friday after CEO Elon Musk announced that the company will cut 7% of its workforce in an effort to sell more affordable Model 3 electric sedans. Despite the massive one-day decline, Tesla’s longer-term outlook appears solid.

Job Cuts & Profits

Musk broke down some of Tesla’s current financials in an email to all employees Friday. Tesla reported a 4% profit in the third quarter, which Musk referred to as Tesla’s “first meaningful profit in the 15 years.” The outspoken CEO pointed out that its Q3 profit was based on the higher average selling price of the Model 3 in North America.

Musk continues to expect Tesla to report a profit in Q4, just less than last quarter. Tesla also projects it will report profits in the first quarter of 2019 as it begins to ship Model 3 variants in Europe and Asia. “However, starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles,” Musk wrote.

Tesla and Musk have always planned to make the Model 3 an “affordable” mass-market vehicle. But right now, the cheapest Model 3 costs roughly $44,000.

Going forward, the company’s ability to lower costs becomes even more vital as the U.S. government tax credits come to an end over the next few years. “As a result of the above, we unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors,” Tesla’s CEO continued.

“Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn't any other way.”

1 2 3
View single page >> |

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.