By Rex Crum

The Mercury News

Tesla Chief Executive Elon Musk stunned Tesla’s employees when on Friday he said the electric carmaker will cut 7 percent of its workforce as it drives forward with its plans to produce a new, lower-priced version of its Model 3 sedan.

Musk made the announcement in a letter to Tesla employees that he posted on the company’s blog Friday morning. Musk said the reduction in Tesla’s workforce is the result of several factors that the company is facing as it tries to move toward producing electric cars that are more for mass-market consumers as opposed to what are seen a luxury cars for those capable of spending $100,000, or more, on a vehicle.

“The road ahead is very difficult,” 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 $35,000 and still be a viable company. There isn’t any other way.”

Musk noted that the least expensive version of the Model 3 currently starts at $44,000, and by May, it would be imperative for Tesla to “deliver at least the mid-range Model 3 variant in all markets.” Musk noted the need to get the price of the Model 3 down before July, when the federal tax credit for buying an electric vehicle will fall from $3,750 to $1,875, and thus make Tesla’s cars more expensive.

The job cuts are Tesla’s second big round of workforce reductions in less than a year. Last June, the company said it would shave 9 percent off its employee rolls.