Tesla will lay off more than 10% of its global workforce, according to a memo sent to employees by CEO Elon Musk.

The company’s shares were down 3% on Monday morning.

“As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity,” Musk said in the memo obtained by CNBC.

“As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally,” the memo said.

The memo was first reported by Electrek.

Tesla had 140,473 employees as of December 2023.

Tesla shares have taken a bruising in recent months, falling 31% year to date. While electric vehicle sales are still gaining popularity worldwide, their sales growth rate has slowed especially for Tesla. The company now faces more competition than ever.

To end 2023, China’s BYD temporarily dethroned Tesla as the world’s top EV maker. Chinese smartphone company Xiaomi in March said it would sell its first electric car for far less than Tesla’s Model 3.

Musk has previously recognized that China, home to a large Tesla factory, may also house the company’s strongest competition. “There’s a lot of people who are out there who think that the top 10 car companies are going to be Tesla followed by nine Chinese car companies. I think they might not be wrong,” Musk said in November.

Some would-be Tesla customers are now skipping the brand owing to Musk’s incendiary rhetoric on the year to 386,810 in the first quarter, with output down 1.7% from a year earlier and 12.5% sequentially despite discounts and incentives offered to customers throughout the quarter.

Earlier this month, Tesla reported its first annual decline in vehicle deliveries since 2020, when the Covid-19 pandemic disrupted production extraneous of demand — first-quarter deliveries fell by 8.5% on the year to 386,810 in the first quarter, with output down 1.7% from a year earlier and 12.5% sequentially despite discounts and incentives offered to customers throughout the quarter.

More recently, Tesla trimmed the subscription price of its premium driver assistance system, marketed as its Full Self-Driving or FSD option, for U.S. customers. The move was sharply at odds with Musk’s previous pledges that the FSD fee would only bulk up as Tesla added features and functionality to the system. Despite the brand name, the system does not make Tesla vehicles self-driving and requires a driver attentive to the road, ready to steer or brake at any time.

But the squeeze on the company’s operating margin — which came in at 8.2% in the fourth quarter, down from 16% a year earlier — remains, and Tesla has warned investors to brace that vehicle volume growth this year “may be notably lower” than the rate logged in 2023, saying it is “currently between two major growth waves.”

Logistical challenges exacerbated Tesla’s problems this year. The company’s component supply was a casualty of disruptions caused by Yemeni Houthi maritime attacks in the Red Sea, while the automaker’s gigafactory near Berlin was forced to briefly suspend production due to suspected arson at a nearby electricity substation.

Tesla is scheduled to report first-quarter financial results on April 23.

Here’s the full memo from Musk (transcribed by CNBC):

Over the years, we have grown rapidly with multiple factories scaling around the globe. With this rapid growth there has been duplication of roles and job functions in certain areas. As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity.

As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally. There is nothing I hate more, but it must be done. This will enable us to be lean, innovative and hungry for the next growth phase cycle.

I would like to thank everyone who is departing Tesla for their hard work over the years. I’m deeply grateful for your many contributions to our mission and we wish you well in your future opportunities. It is very difficult to say goodbye.

For those remaining, I would like to thank you in advance for the difficult job that remains ahead. We are developing some of the most revolutionary technologies in auto, energy and artifiical intelligence. As we prepare the company for the next phase of growth, your resolve will make a huge difference in getting us there.

Thanks,

Elon