On April 16th, Elon Musk, CEO of Tesla, announced in an internal memo to all employees that the company would undergo significant layoffs globally, with a reduction of over 10%. This move is aimed at addressing slowing market demand and intensifying industry competition, as Tesla seeks to tackle challenges by lowering costs. The memo sparked widespread coverage and commentary from numerous mainstream media outlets.
The Wall Street Journal: Consumer Demand Cools, Pressure Mounts on Tesla
Tesla plans to cut over 10% of its workforce globally, while two senior deputies of Musk—Drew Baglino, head of Powertrain and Energy Engineering, and Rohan Patel, responsible for policy and business development—have also announced their departure. These personnel changes underscore the general cooling of demand for electric vehicles in the market, posing unprecedented challenges for Tesla.
Against the backdrop of a soft electric car market, Tesla is adjusting its strategy. Despite the company's pride in its high profit margins, they have significantly narrowed in recent quarters due to the necessity of stimulating sales through substantial price reductions. Meanwhile, Tesla is also intensifying efforts in developing self-driving cars.
However, with the overall slowdown in the electric vehicle market, various car manufacturers including Tesla have begun to scale back investments. The company's product line is showing signs of aging, facing fierce market competition. Especially in the Chinese market, the rapid rise of domestic electric car brands poses significant pressure on Tesla.
Analysts expect Tesla to clarify its future strategy, with many believing that low-cost vehicles will be key to the company's growth in the near term. While Musk has hinted at plans to launch self-driving taxis in August, analysts predict that the widespread adoption of this product may take longer.
Analyst Adam Jonas from Morgan Stanley pointed out in a recent research report, "Although we expect to see a prototype of Tesla's self-driving taxi launched this summer, we still advise caution regarding the commercialization timeline for such services."
The New York Times: Musk's Unpredictability Highlighted at Critical Times
With Tesla planning layoffs of over 10%, affecting approximately 14,000 employees, this decision comes at a time when the company is facing challenges of intense market competition and declining sales. This round of large-scale layoffs and management changes highlights Elon Musk's unpredictability during critical periods for the company.
Of concern is Musk's failure to propose specific measures to address the issue of declining car sales. Instead, he appears to be more focused on long-term investment projects such as self-driving taxis, rather than developing new models that could quickly enhance Tesla's market competitiveness against established car manufacturers and emerging competitors from China.
Gary Black, managing partner at investment firm "Future Fund," pointed out that external challenges facing Tesla may be attributed to other executives. "Musk cannot bear all the responsibility, given the sharp drop in delivery volumes, inventory nearing record highs, and declining profit margins, there must be others accountable."
Typically, investors view company layoffs positively as a means to improve efficiency by reducing labor costs. However, despite the layoff plan, Tesla's stock price did not rise after the announcement but instead fell by over 5%, indicating deep concerns in the market about Tesla's future development.
Tesla has previously undergone layoffs, usually aimed at removing underperforming employees. However, the scale of this round of layoffs exceeds market expectations. Scott Acheychek, CEO of Tesla shareholder REX Shares, commented, "Musk has a history of such actions in his career, but this 10% layoff rate is indeed very high."
The Washington Post: Tesla May Need Until After 2025 to Recover Growth
Tesla's layoffs undoubtedly signify unprecedented challenges for this leading global electric car manufacturer. In the face of cooling market demand, intensified regulatory scrutiny, and various controversies surrounding Musk, Tesla is striving to maintain its leadership position in the electric vehicle industry.
Recently, Musk has faced significant pressure in raising funds for the acquisition of X Company (formerly Twitter), mainly through selling Tesla stocks. He must now prove to the outside world that this car manufacturer is actively improving its financial situation and dispelling concerns about losing its position as a leader in technological innovation.
Gene Munster, managing partner at Loup Ventures, stated, "If Tesla's business demonstrates a strong recovery, they naturally wouldn't choose layoffs." He added that Tesla's new growth phase may not start until after 2025.
Since Musk took over X Company in 2022, Tesla's prospects have attracted more attention, prompting some investors who were once enthusiastic about Tesla to reassess their relationship with the company. Musk's controversial remarks have not only alienated potential car buyers but also put him in an unprecedented dilemma—while seeking to expand control, support for him is weakening.
Analysts point out that the large-scale layoffs announced on Monday indicate that Tesla is in a phase of cost-cutting, and any signs of recovery will take at least a year to materialize. Munster pointed out, "They (Tesla) are clearly adjusting their business strategy to address the significant slowdown in market demand challenges." He also suggested that due to Musk's potential "overcutting" strategy, customers should be prepared for potentially longer wait times for deliveries in the future.
Financial Times: Pressure Mounts Across Electric Car Industry
Facing the dual pressures of slowing global electric car growth and intense price wars, Tesla confronts unprecedented challenges, prompting the announcement of job cuts exceeding 10%, affecting at least 14,000 positions. This move further highlights the impact of slowing electric vehicle sales on the global automotive industry, with companies throughout the supply chain, from South Korea to Germany, resorting to layoffs and cost reductions.
As a pure electric vehicle manufacturer, Tesla is more vulnerable to the effects of slowing electric car market than traditional automakers. This predicament was directly reflected in Monday's stock market, with Tesla's shares falling by 5.6%, resulting in a cumulative decline of over one-third since the beginning of the year, making it the second worst performer in the S&P 500 index, trailing only behind a traditional automaker.
Especially in the Chinese market, the pressure on Tesla is particularly evident. As the world's largest automobile market, competition between domestic electric vehicle manufacturers and foreign firms is intensifying. According to data from the China Passenger Car Association, Tesla's share of China's electric and hybrid car market decreased from 7.7% to 6.6% in the first two months of this year. The industry association also forecasts that Tesla's sales in China in April are expected to be around 25,000 vehicles, a year-on-year decrease of 37%.
Regarding Tesla's job cut plans, Craig Irwin, Senior Research Analyst at Roth MKM, remarked, "The news itself is not surprising; it's more of an acknowledgment that economic growth won't rebound quickly."
Bloomberg: Tesla Continues to Face Shadow of Layoffs
Tesla's plan to cut more than 10% of its workforce signifies the electric car giant's proactive response to the severe challenge of slowing global demand for electric vehicles.
Tesla had previously implemented a large-scale layoff in mid-2022, when about 10% of its permanent employees were cut. Since the beginning of this year, the shadow of layoffs has been looming over Tesla's employees. Company executives had previously requested managers to conduct important assessments of each employee's position, undoubtedly exacerbating employees' anxiety. What's even more discouraging for employees is that the company scrapped performance-based stock awards in its annual performance evaluations at the end of last year.
During the January earnings conference call, Tesla's Chief Financial Officer, Vaibhav Taneja, stated, "We must make every effort to reduce costs to ensure the company's sound operation." He emphasized that Tesla has a very focused and strong team dedicated to achieving this goal.
The slowdown in electric vehicle growth is not only Tesla's problem but a challenge faced by the global electric car market as a whole. For example, global electric vehicle market leader BYD's first-quarter delivery volume of pure electric vehicles decreased by 43% year-on-year. In addition, traditional automakers such as Volkswagen, General Motors, and Ford have also been postponing, scaling back, or canceling electric vehicle projects due to consumer concerns about high prices and charging infrastructure.
Reuters: Tesla Faces Dual Challenges
Tesla is addressing declining sales and intensifying price wars in the electric vehicle market, leading to a decision to cut more than 10% of its workforce globally.
Regarding this round of layoffs, Scott Acheychek, CEO of Rex Shares, believes it is a strategic adjustment by the company to market changes aimed at optimizing its structure. However, Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors, has a different view, suggesting that the departure of two executives is a "bigger negative signal," further highlighting Tesla's growth challenges.
Analysts from market research firm Gartner and Hargreaves Lansdown pointed out that with competitors like Volkswagen continuously investing in new models and artificial intelligence technology, Tesla's layoffs may be a clear sign of the cost pressures it faces.
CNBC: Tesla Faces Multifaceted Challenges
Despite ongoing growth in the global electric vehicle market, the pace has significantly slowed, posing unprecedented market challenges for Tesla.
By the end of 2023, BYD briefly surpassed Tesla to become the world's largest electric vehicle manufacturer. Meanwhile, Chinese smartphone giant Xiaomi announced its entry into the electric vehicle market, with plans to launch a new car priced much lower than Tesla's Model 3. Given that China is not only an important production base for Tesla but also potentially its strongest competitor, Musk's strategic focus on the Chinese market is particularly significant.
Tesla's recent financial report, released earlier this month, showed its first annual decline in vehicle deliveries since 2020. To alleviate market pressure, Tesla recently lowered the price of its Full Self-Driving subscription for U.S. customers, a move that contradicts Musk's previous commitments and has garnered widespread market attention and scrutiny.
Additionally, Tesla's operating profit margin has also been squeezed. Its operating profit margin in the fourth quarter of last year was only 8.2%, significantly lower than the 16% in the same period the previous year. Tesla warned investors that its car sales growth this year "may be much lower than" 2023 levels, stating it is "currently between two major growth waves." Logistics issues have exacerbated Tesla's woes this year. Maritime attacks in the Red Sea have disrupted Tesla's supply of components, hampering production processes. Additionally, Tesla's Gigafactory near Berlin faced temporary shutdowns due to arson attacks on nearby substations, further adding to production pressures.
