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Tesla (NASDAQ:TSLA) share price up 3% after pledging to cut 9% of workforce

Tristan Harrison

The Tesla Inc (NASDAQ:TSLA) share price finished the American day up 3.2% after announcing that it would cut the workforce by 9%.

Tesla has been under tremendous scrutiny in recent months with the company burning through cash. It has invested significantly in its car manufacturing plant, which was meant to be pumping out 5,000 Tesla Model 3s a week by now, but it has been struggling to produce half that amount.

Obviously if Tesla is only producing half of its expected output then its loss and cash position is going to be much worse than expected!

To combat the problems, Tesla said that it would cut 9% of the workforce, focusing on the duplication of roles and jobs that had been created that Tesla could no longer justify. Its rapid rise has also been a thorn.

On Twitter, Elon Musk confirmed that the company needs to be able to eventually demonstrate that it can achieve sustainable profit. As part of the job cuts, it will not renew its residential sales agreement with Home Depot and instead focus on selling solar in stores and online. A majority of these will be offered the opportunity to move to Tesla retail locations.

None of the job losses will be in the production roles. Mr Musk reminded people that Tesla and Ford are the only American companies that haven’t gone bankrupt.

He mentioned that Tesla is a tiny company. It might have a lot smaller revenue than Toyota, but its market cap of over US$50 billion is hardly ‘tiny’.

I don’t believe that Tesla will be disappearing any time soon, but I think analysts have been right to question Tesla and Musk considering all the broken promises about production targets in the past.

Foolish takeaway

Is Tesla a buy? I’m not sure. If it becomes the prime choice for mass market automated electric cars then it could easily be a buy today, however its major competitors will definitely want a piece of the action. I’m just an interested spectator.

However, I think it goes to show that even with a visionary leader and amazing product, you can’t get away from realities like cashflow and production.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.