Tesla Inc. plans to cut its full-time work force by 7 percent as the electric vehicle maker tries to cut costs as it ramps up production of its Model 3 electric sedan.
The job cuts, which were announced by CEO Elon Musk in an email Friday to employees, will include positions at the Buffalo plant, although the email and company officials are not saying how many of the firings would take place at Tesla's solar panel factory on South Park Avenue, where the company has about 400 employees.
The job cuts in Buffalo, however, are not expected to exceed 50 people. A 7 percent reduction of a work force of around 400 people would affect about 28 employees.
The state spent $750 million to build and buy equipment for the Buffalo factory as the centerpiece of Gov. Andrew M. Cuomo's Buffalo Billion economic development plan.
Tesla has promised to have 1,460 jobs at the factory by April 2020, which means its workforce locally would have to grow by about 80 percent over the next 15 months to meet that target or else it could face a $41.2 million penalty for falling short.
"We face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels," Musk wrote in the email. "While we have made great progress, our products are still too expensive for most people."
The job cuts come as Tesla has been making other, smaller efforts to reduce its costs. The company said it would end its customer referral program that offered participants six free months of charging, with Musk saying it was too expensive. Tesla also said it would stop selling the cheapest versions of its Model S sedans and Model X SUVs.
"The road ahead is very difficult," Musk wrote. "This is not new for us – we have always faced significant challenges – but it is the reality we face."
Musk tweeted in October that Tesla, which increased its headcount by 30 percent last year, had around 45,000 employees. A 7 percent reduction would be about 3,150 jobs, although the company did not say exactly how many positions are being eliminated.
"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," Musk wrote.
Tesla's Buffalo factory is operated in partnership with Panasonic, which makes solar panels at the South Park Avenue facility and has about 400 employees of its own. The Panasonic work force would not be included in the Tesla job cuts.
Tesla's Buffalo operations will center around production of its solar roof, which looks like a conventional roof but has solar cells inside. The roof, which costs more than twice as much as a conventional roof, is viewed by Musk as the next step in the evolution of solar energy that will move away from clunky solar panels attached to a roof in favor of an integrated system with a solar roof linked to batteries that can store the energy generated by the solar cells so it can be used at night or when it's cloudy.
But most of Musk's email focused on Tesla's electric vehicle business, which depends on the Model 3 becoming a hit with consumers at a price point that also allows the company to operate profitably.
Tesla earned $311 million during the third quarter and Musk said he expects the company to report a smaller profit during the fourth quarter, but he warned that increasing Model 3 production and selling more of the less-expensive versions of the sedan would make it harder for the company to make money.
"Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months," he said. "Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required" to produce a less expensive version of the Model 3 that is expected to sell for around $35,000.