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Tesla is trimming 7% of its workforce amid preparations for $35K base Model 3 ramp

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Tesla appears to be taking a rather painful step forward as it continues to ramp the production of its latest and most disruptive vehicle to date — the Model 3. In an update on Friday, Tesla Inc. stated that it would be cutting its full-time workforce by about 7%, amidst the company’s preparations to produce the most elusive version of the electric sedan to date — the $35,000 base Model 3.

In a statement to CNBC, Tesla noted that it is necessary for the company to implement manufacturing design improvements to enhance the economies of scale needed to produce the $35,000, 220-mile range vehicle. Following is Tesla’s statement to the news agency.

“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,” Tesla said.

The update on Tesla’s recent round of layoffs appears to have shaken the company’s investors. As of writing, Tesla stock (NASDAQ:TSLA) is down more than 5% in Friday’s pre-market trading.

The end goal for the Tesla Model 3 is to be a vehicle that is affordable enough to be accessible to the mainstream car market; hence, triggering a disruption of the auto industry. Priced at $35,000 before options, the Standard Range Model 3 costs roughly the same as a top-tier Toyota Camry, which tops out at $34,950 for the range-topping XSE V6 version.

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Despite being a base variant, though, the $35,000 Model 3 is still loaded to the teeth with tech, including the necessary hardware for Autopilot and Full Self-Driving, as well as safety systems comprised of cameras, ultrasonic sensors, and radar. With its 220-mile range, 5.6-second 0-60 mph time, and top speed of 130 mph, the $35,000 Standard Range Model 3 RWD has the makings of a true fossil fuel car killer.

That said, building the $35,000 vehicle has proven to be difficult. Elon Musk has been pretty upfront about the challenges Tesla is facing with regards to the production of the Standard Range Model 3. During Tesla’s Q3 2018 earnings call, for one, Musk explained the reason why the company is still unable to produce the Model 3’s base variant.

“If we could produce a $35,000 car today, we would do it. We need more work, there is more work to do before in order to make a $35,000 car and have it be positive gross margin. We’re probably less than six months from that,” Musk said.

Amidst these challenges, though, Tesla has made adjustments to offer the Model 3 at a lower price for customers in the United States and Canada. The most prominent of these is the introduction of the 264-mile Mid Range Model 3, which was initially priced at $45,000 (later adjusted to $46,000, and most recently, $44,000). As the year begins and as the international ramp of the Model 3 starts in China and Europe, though, it appears that finally, Tesla is just about ready to get serious with the production ramp of its most ambitious vehicle to date. 

Tesla has shared an email sent to employees from CEO Elon Musk about the new round of layoffs. Following is the entire message in full.

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As we all experienced first-hand, last year was the most challenging in Tesla’s history. However, thanks to your efforts, 2018 was also the most successful year in Tesla’s history: we delivered almost as many cars as we did in all of 2017 in the last quarter alone and nearly as many cars last year as we did in all the prior years of Tesla’s existence combined! Model 3 also became the best-selling premium vehicle of 2018 in the US. This is truly remarkable and something that few thought possible just a short time ago.

Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels. While we have made great progress, our products are still too expensive for most people. Tesla has only been producing cars for about a decade and we’re up against massive, entrenched competitors. The net effect is that Tesla must work much harder than other manufacturers to survive while building affordable, sustainable products.

In Q3 last year, we were able to make a 4% profit. While small by most standards, I would still consider this our first meaningful profit in the 15 years since we created Tesla. However, that was in part the result of preferentially selling higher priced Model 3 variants in North America. In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.

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. Moreover, we need to continue making progress towards lower priced variants of Model 3. Right now, our most affordable offering is the mid-range (264 mile) Model 3 with premium sound and interior at $44k. The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making our car $1,875 more expensive, and again at the end of the year when it goes away entirely.

Sorry for all these numbers, but I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult. This is not new for us – we have always faced significant challenges – but it is the reality we face. There are many companies that can offer a better work-life balance, because they are larger and more mature or in industries that are not so voraciously competitive. Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity, but succeeding in our mission is essential to ensure that the future is good, so we must do everything we can to advance the cause.

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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 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.

To those departing, thank you for everything you have done to advance our mission. I am deeply grateful for your contributions to Tesla. We would not be where we are today without you.

For those remaining, although there are many challenges ahead, I believe we have the most exciting product roadmap of any consumer product company in the world. Full self-driving, Model Y, Semi, Truck and Roadster on the vehicle side and Powerwall/pack and Solar Roof on the energy side are only the start.

I am honored to work alongside you.

Thanks for everything,
Elon

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Simon is an experienced automotive reporter with a passion for electric cars and clean energy. Fascinated by the world envisioned by Elon Musk, he hopes to make it to Mars (at least as a tourist) someday. For stories or tips--or even to just say a simple hello--send a message to his email, simon@teslarati.com or his handle on X, @ResidentSponge.

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Investor's Corner

Tesla stock lands elusive ‘must own’ status from Wall Street firm

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Tesla model y with FSD Unsupervised at Giga Texas
Credit: Tesla AI | X

Tesla stock (NASDAQ: TSLA) has landed an elusive “must own” status from Wall Street firm Melius, according to a new note released early this week.

Analyst Rob Wertheimer said Tesla will lead the charge in world-changing tech, given the company’s focus on self-driving, autonomy, and Robotaxi. In a note to investors, Wertheimer said “the world is about to change, dramatically,” because of the advent of self-driving cars.

He looks at the industry and sees many potential players, but the firm says there will only be one true winner:

“Our point is not that Tesla is at risk, it’s that everybody else is.”

The major argument is that autonomy is nearing a tipping point where years of chipping away at the software and data needed to develop a sound, safe, and effective form of autonomous driving technology turn into an avalanche of progress.

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Wertheimer believes autonomy is a $7 trillion sector,” and in the coming years, investors will see “hundreds of billions in value shift to Tesla.”

A lot of the major growth has to do with the all-too-common “butts in seats” strategy, as Wertheimer believes that only a fraction of people in the United States have ridden in a self-driving car. In Tesla’s regard, only “tens of thousands” have tried Tesla’s latest Full Self-Driving (Supervised) version, which is v14.

Tesla Full Self-Driving v14.2 – Full Review, the Good and the Bad

When it reaches a widespread rollout and more people are able to experience Tesla Full Self-Driving v14, he believes “it will shock most people.”

Citing things like Tesla’s massive data pool from its vehicles, as well as its shift to end-to-end neural nets in 2021 and 2022, as well as the upcoming AI5 chip, which will be put into a handful of vehicles next year, but will reach a wider rollout in 2027, Melius believes many investors are not aware of the pace of advancement in self-driving.

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Tesla’s lead in its self-driving efforts is expanding, Wertheimer says. The company is making strategic choices on everything from hardware to software, manufacturing, and overall vehicle design. He says Tesla has left legacy automakers struggling to keep pace as they still rely on outdated architectures and fragmented supplier systems.

Tesla shares are up over 6 percent at 10:40 a.m. on the East Coast, trading at around $416.

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Investor's Corner

Tesla analyst maintains $500 PT, says FSD drives better than humans now

The team also met with Tesla leaders for more than an hour to discuss autonomy, chip development, and upcoming deployment plans.

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Credit: Tesla

Tesla (NASDAQ:TSLA) received fresh support from Piper Sandler this week after analysts toured the Fremont Factory and tested the company’s latest Full Self-Driving software. The firm reaffirmed its $500 price target, stating that FSD V14 delivered a notably smooth robotaxi demonstration and may already perform at levels comparable to, if not better than, average human drivers. 

The team also met with Tesla leaders for more than an hour to discuss autonomy, chip development, and upcoming deployment plans.

Analysts highlight autonomy progress

During more than 75 minutes of focused discussions, analysts reportedly focused on FSD v14’s updates. Piper Sandler’s team pointed to meaningful strides in perception, object handling, and overall ride smoothness during the robotaxi demo.

The visit also included discussions on updates to Tesla’s in-house chip initiatives, its Optimus program, and the growth of the company’s battery storage business. Analysts noted that Tesla continues refining cost structures and capital expenditure expectations, which are key elements in future margin recovery, as noted in a Yahoo Finance report. 

Analyst Alexander Potter noted that “we think FSD is a truly impressive product that is (probably) already better at driving than the average American.” This conclusion was strengthened by what he described as a “flawless robotaxi ride to the hotel.”

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Street targets diverge on TSLA

While Piper Sandler stands by its $500 target, it is not the highest estimate on the Street. Wedbush, for one, has a $600 per share price target for TSLA stock.

Other institutions have also weighed in on TSLA stock as of late. HSBC reiterated a Reduce rating with a $131 target, citing a gap between earnings fundamentals and the company’s market value. By contrast, TD Cowen maintained a Buy rating and a $509 target, pointing to strong autonomous driving demonstrations in Austin and the pace of software-driven improvements. 

Stifel analysts also lifted their price target for Tesla to $508 per share over the company’s ongoing robotaxi and FSD programs. 

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Investor's Corner

Tesla wins $508 price target from Stifel as Robotaxi rollout gains speed

The firm cited meaningful progress in Tesla’s robotaxi roadmap, ongoing Full Self-Driving enhancements, and the company’s long-term growth initiatives.

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Credit: Joe Tegtmeyer/X

Tesla received another round of bullish analyst updates this week, led by Stifel, raising its price target to $508 from $483 while reaffirming a “Buy” rating. The firm cited meaningful progress in Tesla’s robotaxi roadmap, ongoing Full Self-Driving enhancements, and the company’s long-term growth initiatives. 

Robotaxi rollout, FSD updates, and new affordable cars

Stifel expects Tesla’s robotaxi fleet to expand into 8–10 major metropolitan areas by the end of 2025, including Austin, where early deployments without safety drivers are targeted before year-end. Additional markets under evaluation include Nevada, Florida, and Arizona, as noted in an Investing.com report. The firm also highlighted strong early performance for FSD Version 14, with upcoming releases adding new “reasoning capabilities” designed to improve complex decision-making using full 360-degree vision.

Tesla has also taken steps to offset the loss of U.S. EV tax credits by launching the Model Y Standard and Model 3 Standard at $39,990 and $36,990, Stifel noted. Both vehicles deliver more than 300 miles of range and are positioned to sustain demand despite shifting incentives. Stifel raised its EBITDA forecasts to $14.9 billion for 2025 and $19.5 billion for 2026, assigning partial valuation weightings to Tesla’s FSD, robotaxi, and Optimus initiatives.

TD Cowen also places an optimistic price target

TD Cowen reiterated its Buy rating with a $509 price target after a research tour of Giga Texas, citing production scale and operational execution as key strengths. The firm posted its optimistic price target following a recent Mobility Bus tour in Austin. The tour included a visit to Giga Texas, which offered fresh insights into the company’s operations and prospects. 

Additional analyst movements include Truist Securities maintaining its Hold rating following shareholder approval of Elon Musk’s compensation plan, viewing the vote as reducing leadership uncertainty.

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@teslarati Tesla Full Self-Driving yields for pedestrians while human drivers do not…the future is here! #tesla #teslafsd #fullselfdriving ♬ 2 Little 2 Late – Levi & Mario
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