According to Reuters, on April 15th local time, Tesla CEO Musk stated in an internal letter to employees that Tesla will lay off 10% of its workforce globally, which may affect approximately 15000 employees.
On April 16th, it was reported that employees at Tesla's Shanghai factory have also received relevant layoff emails and have established an internal communication group to discuss layoffs and compensation. Regarding this, a reporter from the Daily Economic News verified with Tesla China, but as of press release, no response has been received.
Regarding the reasons for Tesla's layoffs, Shen Meng, Executive Director of Xiangsong Capital, analyzed in an interview with reporters that the growth rate of the electric vehicle market capacity has slowed down, while Tesla has been rapidly expanding production capacity and there is a certain degree of resource expansion. After changes in market trends, in order to ensure stable gross profit margins, Tesla needs to slim down and cope with more severe challenges in the future.
After the news of layoffs spread, Tesla's stock price fell by more than 5%. As of the close on April 15th local time, Tesla's stock price has fallen by nearly 5.6%, reaching its lowest closing level in nearly a year. Its market value is $514.28 billion, which is about half of its peak of $1.1 trillion two years ago.
Layoffs have long had a "signal"
Musk explained in an internal letter that over the years, Tesla has developed rapidly and established multiple factories around the world. However, at the same time, there has also been duplication of roles and job functions in certain fields. Reducing costs and improving productivity are extremely important as companies prepare for the next stage of growth.
It is worth noting that at Tesla's 2022 shareholder meeting held in August 2022, Musk announced that in the future, Tesla is expected to build 10-12 super factories worldwide, with each factory's planned annual production capacity expected to be between 1.5 million and 2 million vehicles. In 10 years, Tesla is confident in achieving a delivery volume of over 100 million vehicles.
In March 2023, Tesla's new factory settled in Mexico with a planned investment of approximately $5 billion, producing approximately 1 million cars annually. At this point, Tesla has 5 complete vehicle manufacturing super factories worldwide (Austin, Texas, Shanghai, California, Berlin, and Mexico).
With the continuous expansion of the company's business, the number of employees under Tesla has also shown a rapid growth trend in recent years, increasing from 38000 at the end of 2017 to nearly 128000 by the end of 2022, and then to over 140000 by the end of 2023.
Public data shows that as of December 31, 2023, Tesla has a total of 140473 global employees. A 10% layoff means that over 14000 Tesla employees will face unemployment. "There is nothing that I detest more than this (layoff) decision, but we must do so. This will enable us to strive for excellence, innovate courageously, remain thirsty, and prepare for the next growth phase cycle," Musk said in this internal letter.
It is reported that in February this year, Tesla began to postpone performance evaluations for some employees, and then news began to spread about Tesla's layoffs - the number of layoffs could reach up to 20%. The internal letter released by Musk undoubtedly confirms the previous layoff news, but the layoff rate is not 20%, but 10%.
Sales in the first quarter did not meet expectations
In fact, Tesla has conducted several large-scale layoffs globally since 2017. In June 2022, Musk wrote an email to the company's management titled "Suspending All Global Recruitment", stating that he had a "super bad feeling" about the economic situation and that Tesla needed to cut approximately 10% of its jobs. Subsequently, it was revealed that Tesla China's layoff plan had been implemented, with a layoff rate of around 10%, but not involving the production and manufacturing end. At that time, Tesla had nearly 10000 employees worldwide affected.
And this layoff also affected Tesla executives. On April 15, Tesla executives Drew Baglio and Rohan Patel announced that they would leave Tesla. "Their departure 'indicates that Tesla is facing serious resistance in its main growth phase'," Michael Ashley Schulman, Chief Investment Officer of Running Point Capital Advisors, believes. "This is a bigger negative signal than layoffs.".
Wade Bush Securities Dan Ives also warned that layoffs are an ominous signal for Tesla, indicating that Tesla will face difficult times in the future.
However, Garrett Nelson, an analyst at CFRA (the Research and Consulting Center for Financial Research and Analysis in the United States), believes that the fact that Tesla is taking action to reduce costs during an economic slowdown should have a positive impact on profitability.
According to the financial report, Tesla's gross profit margin for the entire year of 2023 was 18.2%, a decrease of 7.35 percentage points compared to 2022. "The main adverse factors faced by Tesla include a larger than expected decline in car prices, increased competition in electric vehicles, and delays in products and functions such as FSD and the third generation platform. Therefore, although the company has long-term growth potential, it faces significant risks in the short term." At that time, Gao Sheng analysts believed that.
Recently, Tesla delivered a delivery data that fell far short of expectations. On the evening of April 2nd, Tesla released delivery data for the first quarter of 2024, showing that Tesla's global delivery volume in the first quarter of this year decreased by 8.5% year-on-year to 386800 vehicles, marking its first year-on-year decline in nearly four years, lower than market expectations of around 430000 vehicles. "Tesla's production in the first quarter was 433000 vehicles, with a production sales gap of nearly 50000 vehicles, indicating that in addition to known production bottlenecks, Tesla may also have serious demand issues," said Emmanuel Rosner, an analyst at Deutsche Bank.
Robert W. Baird analyst Ben Kallo believes that Tesla's second quarter sales may decline again, following an unexpected decline in sales in the first quarter of 2024.
In fact, regarding the decline in sales in the first quarter of this year, Musk made it clear during the 2023 financial report conference call held at the beginning of the year that due to the company's research and development of next-generation vehicles, the growth in production, delivery, and shipment in 2024 will slow down and may be significantly lower than in 2023.