He said Tesla's rapid growth in recent years contributed to the duplication of roles and creation of jobs that the company could no longer justify.
Musk explained that the job cuts are part of a restructuring, adding that the layoffs should help reduce costs and finally make the company profitable.
Nearly all of the jobs are salaried positions, Musk said.
As part of this effort, and the need to reduce costs and become profitable, we have made the hard decision to let go of approximately 9% of our colleagues across the company.
The move will not affect factory workers as Tesla continues to ramp up production of its lower-priced Model 3 compact vehicle.
The move follows Tesla starting a brutal review of contractors and firing everyone that is not vouched for by an employee last month.
Tesla shares pared an earlier gain of as much as 6.9 per cent and were up 3.2 per cent to US$342.81 as of 2:21 p.m.in NY trading. The company is now producing just under 3,000 per week, Bloomberg estimates.
The announcement came in an email Musk sent to employees about a series of layoffs Tesla began this week.
"9 percent job cut is a good number and I don't think there will be more job cuts in the near term", Efraim Levy, analyst at CFRA Research said. The firm has a sector weight rating and a $300 "fair value" price target on Tesla shares, which were up about 4% in pre-market trade Tuesday.
Tesla also said it was not renewing its residential sales agreement with retailer Home Depot in order to focus on selling solar power in Tesla stores and online. Tesla (TSLA) is still hiring for key positions and will increase its production staff.
Home Depot's relationship with Tesla will continue through the end of the year, a Home Depot spokesman told Fortune. Most Tesla employees working out of Home Depot will have the opportunity to move to Tesla stores, Musk said.
Musk says Tesla is making the move now so it never has to do it again.
"We are a small company in one of the toughest and most competitive industries on Earth", Musk wrote.
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