Tesla has announced a slate of layoffs representing a roughly 9% reduction to its workforce. In an email to employees, CEO Elon Musk said the cuts, described as part of a comprehensive restructuring, would not include the automaker's production associates, keeping the company on track to meet production targets for its popular Model 3. He also suggested that the move would push Tesla closer to profitability, a mark it has largely missed over the past 15 years.
Shares of Tesla (NASDAQ: TSLA) opened higher on Tuesday following a note from KeyBanc Capital Markets analysts that channel checks on Model 3 output were strong; the stock closed with a gain of 3.2%.
The context for all of this, of course, is Tesla's race to boost margins before running out of the capital needed to fund its rapid investment cadence. Last week, Musk said at the company's annual shareholder meeting that it was "quite likely" Tesla would hit its target of producing 5,000 Model 3s per week by the end of June. He added that a third general assembly line to ease production bottlenecks was recently added, that the all-wheel-drive version of the Model 3 would begin production in July and that the smaller Model 3 battery option (which pushes the starting price down to $35,000) would likely start production in early 2019.
Critically, Musk reiterated guidance for positive net income and cashflow in the third and fourth quarters of the year—a sentiment many on Wall Street disagree with as the company prepares to unveil the Model Y small SUV next March ahead of the start of production in 2020.
The fear is that a dilutive capital raise will be needed amid pressures including falling Model 3 customer deposits (a source of no-cost loans), accounting shenanigans (delayed payments to suppliers) and odd behavior from Musk, including a contentious earnings call back in May. Tesla is the most bet-against stock in the United States, with a new record $12.6 billion sold short, according to financial analytics firm S3 Partners. UBS analysts believe the company will have no choice but to raise money from investors before the end of the year.
Another unknown is the state of Tesla's semi-autonomous Autopilot system, which has been the subject of multiple regulatory investigations after a number of deadly crashes amid criticism it has been overhyped and underbuilt (lacking LiDAR-based sensors). In a tweet on Monday, Musk teased that the "long awaited" Version 9 of the system would be released in August and would "begin to enable full self-driving features"—without clarifying exactly what that meant.
Analysts at Nomura also raised their price target on Tesla shares last week, penciling in $450 a share on optimism over gross margins on Model 3 output which, to date, has skewed towards higher-priced, higher-optioned vehicles. The company will next report results on August 1 after the bell. Analysts are looking for a loss of $2.70 per share on revenues of $4.2 billion.
Tesla's dealmakingIn November, Tesla picked up Perbix, a Minneapolis-based maker of manufacturing equipment, to ramp up automation at its production facilities. Perbix has been a supplier to Tesla for the past three years. Owning it outright has helped stem ongoing production delays for the Model 3 following the acquisition of German manufacturer Grohman Engineering in 2016.
Founded in 1976, Perbix designs, builds and services automated, high-volume manufacturing machinery. The deal represented just Tesla's fourth acquisition of all time, according to the PitchBook Platform.
In addition to announcing the layoffs, Musk also stated Tesla would not renew its residential sales agreement with Home Depot. Earlier this year, the hardware store and the automaker expanded struck a deal to open some 800 Tesla-branded storefronts within Home Depot locations to demo its residential solar panels and Powerwall batteries.
Related reads: Is Tesla all wrong on Autopilot?