Pioneering electric vehicle maker Tesla (NASDAQ:TSLA) is slashing its workforce with the cuts to affect more than 10% of its employees, equivalent to at least 14,000 jobs.
Controversial CEO Elon Musk conveyed the decision in a memo, citing it as essential to ensure Tesla remains innovative and efficient. The memo was first reported by Electrek and later confirmed by various sources including Reuters.
While the downturn reflects broader issues within the electric vehicle market, as evidenced by similar workforce reductions by other companies like BP (LON:BP) in its EV charging division, other reasons are being tabled, such as increased price competition from Chinese brands.
Supply chain, factory issues
The slowdown has also been partly attributed to logistical challenges and security concerns at production facilities, notably an arson attack at its Berlin factory and disruptions in Red Sea shipping routes.
Musk has defended his leadership and the company’s performance, dismissing claims that his public persona has affected Tesla's sales negatively and pointing out that competitors, such as China's BYD, have also faced similar challenges.
Ross Gerber, CEO of Gerber Kawasaki and a critic of Musk, however, argued that Tesla's issues are indicative of deeper management failures affecting the brand's performance.
The company has experienced a challenging start to 2024, with production issues and a global softening in demand leading to its first decline in quarterly deliveries in nearly four years.
Tesla delivered around 387,000 vehicles in the first quarter, missing market expectations by 13%.
The layoffs coincide with strategic changes within the company, including the departure of key executives like the battery development chief and the vice president for public policy, pointing to a shift as Tesla prepares for future growth phases.
This restructuring follows a previous round of layoffs in 2022 when Musk expressed concerns about the economic climate.
Despite the cuts, Tesla's workforce had grown significantly from about 100,000 employees in late 2021 to more than 140,000 by the end of 2023.
Further compounding Tesla’s challenges are its declining profit margins, especially in highly competitive markets like China.
Profits, share price down
The company reported a gross profit margin of 17.6% in the last quarter of 2023, the lowest in more than four years.
A price war with Chinese manufacturers such as BYD and new market entrant Xiaomi has forced Tesla to lower its prices, impacting its profitability.
The company’s stock has also been affected, with shares dropping by 5.6% following the announcement of the layoffs, reducing its market capitalisation by a cool $38 billion.
Tesla is gearing up for entry into the Indian market and it will need to be ‘lean and hungry’, as Musk has admitted, for that venture.
Meanwhile, the company continues to play with new models and technologies such as self-driving cars, as it stares down the dual tasks of revitalising its product lineup and managing external pressures on its business model.
With ownership of X, the platform formerly known as Twitter and some Brazilian Supreme Court travails to distract him, Musk’s remaining Tesla workers will be hoping he still plans to remain a player in the critical EV market.