Tesla CEO Elon Musk is reacting to the EV maker’s sluggish sales by cutting 10% of the company’s global workforce, according to reports. Additionally, he’s making other personnel changes aimed at reducing overhead. The move comes 10 days after he slashed prices on vehicles to stimulate sales.
Tesla is reportedly cutting 10% of its workforce globally as it looks to improve its profitability.
In addition to the layoffs, which will affect about 15,000 workers, Musk asked managers to identify important employees, paused stock rewards and canceled some employee’s annual reviews, according to Reuters, which cited an internal memo. The company is also reportedly trimming production at Gigafactory Shanghai.
“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% globally,” the memo said.
Tough times means tough measures
Elon Musk is making changes designed to improve the company’s bottom line.
Tesla struggled while EV sales by other automakers finished strong in the first quarter. Tesla’s deliveries were up just 3%, which was below analysts’ estimates. It marked the second straight quarter that the company fell short of Wall Street’s expectations.
There is no question things didn’t go very well for Tesla during the first three months of this year. The automaker reported delivering just 386,810 of its battery-electric vehicles worldwide. Industry analysts were forecasting figures ranging from 449,080 to 454,200 EVs, making this the biggest shortfall for Tesla in years.
The company’s weak first quarter resulted in an estimated backlog of 46,000 vehicles sitting in inventory — a new experience for the automaker. Tesla raised prices on the Model Y by $1,000 April 1, which it warned would happen. However, just four days later, it implemented cuts across the board, in some instances exceeding $8,000, in an attempt to move that sitting metal.
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Flagging faith?
Several analysts expressed real concerns about the Q1 performance — some went further.
Tesla sales rose 38% last year – but were expected to climb 50%.
“Let’s call this as it is: While we were anticipating a bad 1Q, this was an unmitigated disaster 1Q that is hard to explain away,” Wedbush Securities analyst Dan Ives wrote in a note to investors after the results. “We view this as a seminal moment in the Tesla story for Musk to either turn this around and reverse the black eye 1Q performance.”
The company’s stock took a hit in the wake of the results, although they’ve rebounded slightly since then. The stock price is down nearly 30% since the beginning of the year. The company reports earnings April 23, and the recent moves don’t inspire a lot of optimism that Tesla meet or beat analysts’ expectations. If it falls short, it will be the third straight quarter Tesla’s missed the target.
Despite this looming possibility, analysts have issued 17 updates to their recommendations, and none have changed their rating. They’re not all positive, but they’re all remain unchanged.
Making changes
Tesla fell sharply below expectations during the first quarter, even with the launch of the Cybertruck shown here at the Chicago Auto Show.
Musk appears to have his eye on the bottom line these days. In addition to the aforementioned reductions, he recently announced plans to scrap a low-cost EV that had been dubbed either the Model 2 or Model C, depending upon who you asked.
He cited the influx of Chinese EV makers, such as BYD, that were well entrenched in that part of the market and that Tesla couldn’t be profitable there. Instead, he wants to focus the company’s resources on the further development of robocabs, which Musk once said would double or triple the company’s value overnight. He’s also promised to reveal the robocab in August.
The company is also looking to ramp up its production rate of the Cybertruck to fill the more than 200,000-plus reservations reportedly in the company’s system. The stainless steel pickup has presented the company with a slew of problems during its development and early production. However, it’s also expected to be a source of substantial profit, if they can work out the bugs.
Tesla’s also in the midst of a long-awaited update of its existing products. The new Model 3 hit the roads earlier this year and the Model Y is next. Additionally, the update of the original Tesla vehicle, the Roadster, is still in development with an expected arrival date of sometime in 2026. However, that’s already been delayed twice. Musk says it will be the fastest production vehicle in the world when it rolls off the production line.
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