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Tesla TSLA saw its stock price pop 3.2% on Tuesday to close at $342.77 per share after the electric car company announced that it will cut roughly 9% of its global workforce. This climb is part of a recent surge that has Tesla bulls and CEO Elon Musk smiling, while short sellers are left cringing.
Tesla said that it will lay off about 3,500 workers amid its push to meet its mass-market Model 3 production goals. The job cuts are aimed at streamlining the company, but won’t negatively impact Tesla's actual vehicle output. Musk sent an email—which he later tweeted out—to Tesla employees Tuesday detailing the plan and the reasoning behind the move.
“As part of this effort, and the need to reduce costs and become profitable, we have made the difficult decision to let go of approximately 9% of our colleagues across the company," Musk wrote. “These cuts were almost entirely made from our salaried population and no production associates were included, so this will not affect our ability to reach Model 3 production targets in the coming months."
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
Musk also directly addressed an issue that has dogged Tesla recently: profitability. “What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable,” Musk continued. “That is a valid and fair criticism of Tesla’s history to date.”
Why It Matters
Many investors will likely be very pleased to see the outspoken CEO focus on profitability going forward, without sacrificing Model 3 production. Tesla’s job cuts announcement, with the hope of removing self-made red tape, also comes on the heels of other significant company news that has led to its summer run.
Musk said on Sunday that Tesla’s long-awaited Version 9 software update will launch in August, and is set to include “full self-driving features.” Maybe more importantly, the chairman and CEO said it is “extremely likely” that the electric car giant will hit a weekly production rate of 5,000 Model 3 sedans by the end of June. This would come as welcome progress for a company that had over promised and under delivered a lot during the last year.
Tesla’s job cuts are expected to help the company inch toward profitability, while its increased Model 3 production could help propel the company for years to come. The Model 3 will play a vital role in its fight against General Motors GM, Volkswagen VLKAY, Ford F, Toyota TM, and other much more established automakers in the electric vehicle market.
The last few months have seen Tesla’s stock rebound, which has hit short sellers hard. Short interest in Tesla shares expanded from around 30 million at the beginning of 2018 to 39 million as of May 31—the most recent report available. This means the total losses in those short positions is closing in on $3 billion (also read: The "Short Burn of the Century" Seems to be Taking Shape in Tesla).
Shares of Tesla are still down nearly 9% over the last year before today’s climb. But investors can see that Tesla’s stock price has soared since it hit its 52-week low in early April.
Meanwhile, the company’s revenues are projected to surge. Our current Zacks Consensus Estimates are calling for Tesla’s Q2 revenues to soar by nearly 42% to hit $3.96 billion. Looking ahead to the full-year, Tesla’s revenues are expected to reach $18.95 billion, which would mark a 61% climb from fiscal 2017.
Make sure to pay close attention to any Model 3 production updates, as finally reaching those goals will likely prove paramount to Tesla sustaining its current turnaround.
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