Tesla is set to cut its workforce by around seven per cent, sending shares down in pre-market trading.
Chief executive Elon Musk told staff that the company has "no choice" but to reduce its full-time employee headcount after growing unsustainably large.
Musk also blamed squeezing margins at Tesla, with an impending cut to US tax credits making its Model 3 $1,875 more expensive in July as the company tries to "target a tiny profit" this quarter.
Alongside the job cuts, Tesla also plans to ramp up car production rates and introduce lower-priced versions of the Model 3 to give the company some breathing room.
"Starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles," Musk said.
"Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company," he added. "There isn't any other way."
Tesla's stock fell by 8.3 per cent in pre-market trading in reaction to Musk's frank analysis of the challenges the company faces.
The chief executive also commented on the number of hours that Tesla employees work, saying: "There are many companies that can offer a better work-life balance, because they are larger and more mature or in industries that are not so voraciously competitive."
He recently said people should work between 80 and 100 hours a week if they want to "change the world".
Musk also cited the need to remain profitable when Tesla shed nine per cent of its salaried workers in June 2018.
At the time he said the cuts were part of a "comprehensive organizational restructuring" to "reduce costs and become profitable".
Musk asserted in the same email that "profit is obviously not what motivates us".
"I also want to emphasize that we are making this hard decision now so that we never have to do this again," Musk wrote in the email last summer.
Today's announcement comes less than a week after Musk also revealed job cuts at Space X.