Challenging road ahead sees company cut head count by seven per cent.

Elon Musk, Tesla CEO, has confirmed the company will shed about seven per cent of its workforce to "advance our mission", described as "accelerating the advent of sustainable transport and energy, which is important for all life on Earth".

In a letter, the outspoken CEO described 2018 as the "most challenging" and "most successful" year yet for Tesla, which saw it just weeks from bankruptcy as it went through production hell in an effort to churn out 5000 units of the Model 3 per week.

Ever since the milestone was reached, the Model 3 has been one of the best selling cars in the US. In December Tesla delivered 25,250 Model 3 sedans, making it the 12th best selling vehicle overall.

In the third quarter of 2018, Tesla returned its first profit — around four per cent — in several years. Musk claims Tesla also made a smaller profit in the fourth quarter, and is hoping to make a "tiny profit" this quarter.

The CEO says Tesla has been able to turn a profit because it has only been making high-spec, high-margin versions of the Model 3, rather than the much hyped US$35,000 ($45,800) entry-level model.

As Tesla's "products are still too expensive for most people" and "the road ahead is very difficult", Musk said the company needed to reduce its full-time workforce by around seven per cent, and "retain only the most critical temps and contractors".

One key challenge for the company is that it has sold over 200,000 electric cars in the US. This means the federal tax rebate on its vehicles has been reduced from US$7500 to US$3750, will drop to US$1875 from July, and will disappear completely from the beginning of 2020.

To address this, Tesla will need to "continue making progress towards lower priced variants of Model 3".

In addition to reducing its head count, Tesla will also increase production of the Model 3 and make "manufacturing design improvements" to the car.

On Twitter Musk also confirmed Tesla's referral program will end on February 1, noting it was "adding too much cost to the cars, especially Model 3". Earlier this month the company dropped the entry-level 75D variants of the Model S and Model X.