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Stock underperforming legacy automakers like Toyota, General Motors
Tesla will lay off more than 10 per cent of its global workforce, an internal memo seen by Reuters on Monday shows, as it grapples with falling sales and an intensifying price war for electric vehicles.
In a sign of further instability at the EV maker, Tesla's senior vice-president Drew Baglino, in charge of battery development, announced his resignation on X on Monday.
Bloomberg reported that Rohan Patel, vice-president for public policy and business development, had also resigned.
Baglino was one of four members in Tesla's leadership team, which includes CEO Elon Musk, listed on the company's investor relations website.
Their departures "signal that Tesla's major growth phase is meeting serious headwinds," said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, deeming it "the larger negative signal today" than the announcement of job cuts.
The world's largest automaker by market value had 140,473 employees globally as of December 2023, its latest annual report shows. The memo did not say how many jobs would be affected.
Some staff in California and Texas have already been notified of layoffs, a source familiar with the matter told Reuters, declining to be named due to the sensitivity of the subject.
"As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity," Musk said in the memo.
"As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10 per cent globally," it said.
Tesla did not immediately respond to a request for comment.
Stock has fallen about 31 per cent so far this year
The company's shares were down around three per cent per cent in midday trading.
Monday's letter to staff marks the second time Musk has said he would reduce head count by 10 per cent.
In 2022, Reuters reported that Musk told executives he had a "super bad feeling" about the economy and needed to cut jobs at the automaker. Tesla never outlined how many jobs it cut in 2022, but its overall employee count rose.
Tesla shares have fallen about 31 per cent so far this year, underperforming legacy automakers such as Toyota Motor and General Motors, whose shares have rallied 45 per cent and 20 per cent respectively thanks to a slow consumer transition away from traditional internal combustion engine vehicles.
Tesla is having its worst year since the pandemic. The company is selling fewer cars, and its stock is plummeting. And it’s not just Tesla. We’re seeing a cool down in North America’s EV industry as a whole. Why is this happening? And as Canada pours billions of dollars into the industry, will that bet pay off? Senior CBC business reporter Peter Armstrong explains.
Energy giant BP has also cut over a tenth of the workforce in its EV charging business after a bet on rapid growth in commercial EV fleets didn't pay off, Reuters reported on Monday, underscoring the broader impact of slowing EV demand.
A newly elected works council of labour representatives at Tesla's German plant was not informed or consulted ahead of the announcement to staff, said Dirk Schulze, head of the IG Metall union in the region.
"It is the legal obligation of management not only to inform the works council, but to consult with it on how jobs can be secured," Schulze said.
Layoffs could be a cost trim ahead of new models
Analysts said the layoffs were another sign that Tesla will struggle to maintain growth.
"Tesla is maturing as a company and isn't the growth story that it used to be," said Craig Irwin, senior research analyst at Roth Capital.
"Layoffs imply management expects weak demand to persist."
Analysts from Gartner and Hargreaves Lansdown said the cuts were a sign of cost pressures as the carmaker invests in new models and artificial intelligence.
Tesla reported this month that its global vehicle deliveries in the first quarter fell for the first time in nearly four years, as price cuts failed to stir demand.
The EV maker has been slow to refresh its aging models as high interest rates have sapped consumer appetite for big-ticket items, while rivals in China, the world's largest auto market, are rolling out cheaper models.
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Reuters reported this month that Tesla had cancelled a long-promised inexpensive car that investors have been counting on to drive mass market growth. Musk denied the report, but did not identify any specific inaccuracies.
The company is looking to shore up its margins, which have been dented by repeated price cuts, especially in China where it faces stiff competition from local rivals including market leader BYD, which briefly overtook the U.S. company as the world's largest EV maker in the fourth quarter, and new entrant Xiaomi.
It is also gearing up to start sales in India, the world's third-largest auto market, this year, producing cars in Germany for export to India and scouting locations for showrooms and service hubs in major cities.
Tesla recorded a gross profit margin of 17.6 per cent in the fourth quarter, the lowest in more than four years.
Tesla had previously laid off four per cent of its workforce in New York in February last year as part of a performance review cycle and before a union campaign was to be launched by its employees.
Tech publication Electrek first reported the latest job cuts.
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