He said Tesla hopes to post a “tiny profit” in the current quarter but that after expanding its workforce by 30% last year, it cannot support that size of staff.
Mr Musk said in October that Tesla had 45,000 employees. A 7% cut would involve laying off about 3,150 people.
Tesla’s shares tumbled earlier this month after it cut vehicle prices by 2,000 dollars and announced fourth-quarter sales figures that fell short of Wall Street estimates.
“Our products are too expensive for most people,” Mr Musk said in the memo to Tesla staff saying the company has to “work harder”.
“Tesla has only been producing cars for about a decade and we’re up against massive, entrenched competitors,” he said.
The company says it delivered over 245,000 electric cars and SUVs last year, nearly as many as all previous years combined.
But its 2018 production fell far short of a goal set nearly three years ago of manufacturing 500,000 vehicles for the year. That goal was announced in May of 2016 based on advance orders for its mid-range Model 3, which sells for 44,000 dollars.
Mr Musk said Tesla plans to ramp up production of the Model 3, “as we need to reach more customers who can afford our vehicles”.
“Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity,” he said in the memo. “But succeeding in our mission is essential to ensure that the future is good, so we must do everything we can to advance the cause.”