Elon Musk Announces Big Layoffs Ahead of $35,000 Tesla Model 3

Tesla is reducing its number of full-time employees by seven percent, CEO Elon Musk announced in a staff email Friday. Musk claimed in the message that he had “no choice” but to make the cutbacks, which come after a year where the company grew by 30 percent, as the company aims to start producing a $35,000 version of the Tesla Model 3.

In the email shared on Tesla’s website, Musk explained how the Model 3 has gone from a manufacturing nightmare when production first started in July 2017, to become “the best-selling premium vehicle of 2018 in the U.S.” This led to Tesla announcing its third-ever quarter of growth last quarter, and the company is expected to announce its fourth profitable quarter when results are expected to arrive at the start of February. But while the Model 3 was introduced with a $35,000 starting point, Tesla initially focused on more expensive versions to keep its head above water:

See more: Elon Musk Explains Why $35,000 Tesla Model 3 Doesn’t Have Firm Release Date

Tesla started production in July 2017 of models with a base price of $49,000, with a premium interior and a battery capable of driving for 310 miles on one charge. The company reached its goal of producing 5,000 cars per week at the end of June 2018, but six months on the firm still has yet to release the $35,000 version with standard interior and 220 miles of range. In October 2018, Tesla released a $46,000 version with premium interior and 260 miles of range, a price that dropped to $44,000 after the company reduced all its car prices by $2,000 to offset the halving of the $7,500 federal tax credit at the start of this year. The halving was triggered by Tesla selling more than 200,000 electric cars in the United States.

The company layoffs are part of what Musk describes as a broader plan to reach the $35,000 version. Tesla expects to start shipping the Model 3 outside of North America this year, with the first cars set to reach Europe by February. The company will initially only ship the 310-mile version internationally. In May, Tesla aims to start shipping the 260-mile version internationally as well. The email does not put a deadline on when Tesla will start making the 220-mile model, only stating that “the need…becomes even greater” on July 1 when the federal tax credit halves again, and at the end of the year when it disappears completely.

The company may face new challenges soon, as it plans to launch the entry-level Tesla Model Y compact SUV at an event in March.

While Tesla no longer faces the same “production hell” as it did when Model 3 manufacturing started, international expansion and a drive to launch new vehicles could cause more headaches for the third-largest automaker by market cap.