Tesla Inc has announced cutting its full-time workforce by about seven percent and retaining only the most critical temporary workers and contractors.

Elon Musk, the American company's CEO, told his employees in an email on Friday morning that "there isn't any other way" to make the firm that makes electric cars, solar panels and batteries more competitive.

According to Musk's tweet posted last year, the firm currently employs 45,000 people.

A copy of his email published on the company's website on Friday said Tesla increased its staff by 30 percent last year, but it could not support that size of staff as "the road ahead is very difficult".

"Attempting to build affordable clean energy products at scale necessarily requires extreme effort and relentless creativity, 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," Musk said.

He said Tesla would need to make these cuts while increasing the mass market Model 3 sedan production rate and making many manufacturing engineering improvements in the coming months.

"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. There isn't any other way," Musk said.

Tesla's shares tumbled earlier this month after it cut vehicle prices by $2,000 and announced fourth-quarter sales figures that fell short of Wall Street estimates.

"This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit," Musk said.