Business Essentials for Professionals


Cost Reduction Efforts At Tesla To See It Reducing Man Hours In Making Of Model S & X

Cost Reduction Efforts At Tesla To See It Reducing Man Hours In Making Of Model S & X
It has been a just a few days that United States based electric car maker Tesla announced that it would have to cut jobs to reduce costs of production as the company seeks to find out ways to reduce the price of its Model 3 sedan and make them more affordable. And now the Elon Musk led company has announced that it would be bringing down the number of hours for production for its higher priced priced Model S and Model X cars to try and reduce costs of production.
This announcement resulted in a drop of its shares of Tesla by 4.2 per cent to $286.09.
Starting earlier this month, the US car maker is faced with the beginning of the gradual phase out of the US tax exemptions for its electric vehicles being bought by consumers which means that the vehicles would naturally become costlier for the buyers. Tesla is therefore faced with a critical juncture where it has to choose between two options – either increase the prices of its cars and take the risk of losing out of consumers or reducing the prices for its cars by thousands of dollars per vehicle to keep the prices at the level before the phasing out of the tax benefits to customers.
The company would no longer be taking any new orders for the production of 75 kWh version of the Model S and X models so that the production line of the company us streamlined, its Chief Executive Officer Elon Musk had said earlier this month.
"As a result of this change and because of improving efficiencies in our production lines, we have reduced Model S and X production hours accordingly," a Tesla spokesperson told the media in response to questions on the issue. "These changes, along with continuing improvements, give us the flexibility to increase our production capacity in the future as needed," the spokesperson added.
Tesla would be offering more details of the issue when it announces the earnings sometime next week.
The issue of pricing of Tesla is quite a significant one because of the phasing out of the tax benefit for it. According to the company, the reduction of tax benefits which came into effect on January 1 this year essentially added $3,750 to the price of Tesla's electric cars. The company has said that the making lower priced vehicles for buyers for its Model 3 versions would become more necessary starting July this year when the tax credit offered to it by the US government would be cut into half. That would make its cars costlier by another $1,875. Tesla would lose all the tax benefits by the end of the current year.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc