Elon Musk hates letting go of his hardworking employees, and somehow it’s exactly what he keeps doing. In his latest memo, the CEO of Tesla said that the latest cuts into the workforce will remove over 10% of its headcount worldwide. The news will be an unwelcome one to many hit by the strains of the current economic climate, not to mention the tax season that the US is in. In earlier reports this year, we saw Tesla struggling to meet its own goals for the first quarter for this year, in part due to its struggles overseas.
China’s electric car-making company BYD was making inroads into the Asian markets that Tesla was hoping to break into, helped largely by its appeal to affordability over Tesla’s promise of luxury. Tesla blames its missed market expectations on production issues caused by factors largely out of their control, such as an arson attack on its European factory and attacks on shipping in the Red Sea. Nonetheless, there is a clear indifference on the part of the global market towards Tesla’s offerings.
According to the company’s last annual report, Tesla employs 140,473 people worldwide, meaning that at least 14,000 people will be left unemployed by Musk’s ‘difficult decision’. His internal email actually reads: “There is nothing I hate more, but it must be done. This will enable us to be lean, innovative, and hungry for the next growth phase cycle.”
Tesla’s shares fell 1.3% in premarket trading
Musk is not alone in these decisions: electric vehicle charging business BP also let go of over 10% of its workforce, although this accounted for over 100 people. According to Reuters, some of the staff in California and Texas have already been notified of the cuts. Since the layoffs were announced, Tesla’s shares fell 1.3% in premarket trading, marking a devaluation of about 31% so far this year. However, Tesla insists that the layoffs are more a sign of the company trimming its extras prior to releasing the latest models that it has been working on.
‘Low-cost family car’
According to an exclusive report to Reuters, however, Tesla is struggling to meet development goals on its promised vehicles. Tesla has long been hyping up an affordable/entry-level version of its premium cars that cost around $25,000. This vehicle had been expected to drive mass market growth for the company, as well the realisation of Musk’s long-term strategy of developing a luxury car and using its profits to finance the development of a ‘low-cost family car’.
The rumours that had been circulating throughout the company meant that employees weren’t exactly unprepared when the news of the layoffs reached them. According to these rumours, managers had allegedly been asked to provide their superiors with lists of names holding ‘non-critical’ job roles. With rumours came an inexplicable delay in the usual performance reviews of a few people, and a halt in certain stock rewards. Musk’s email explains how non-essential positions proliferated the company in greater detail. According to the memo, Tesla’s rapid growth around the world had resulted in a “duplication of roles and job functions in certain areas”, which had to be addressed in order to make way for future growth, and facilitate ‘cost reductions and increased production’.
Xiaomi vs Tesla
According to market analysts, however, there are varying degrees of truth to this statement. Tesla is certainly looking to reduce costs, given the price war currently being fought out on the EV front. Xiaomi, a Chinese smartphone company, offers its very first electric car for at least $4K less than Tesla’s Model 3. According to Xiaomi CEO Lei Jun, this means that the company would have to sell each car at a loss, despite beating close to 90% of Tesla’s specifications except for two aspects. Tesla’s Model 3 starts at 245,900 yuan in China, while Xiaomi’s standard version of the SU7 sells for 215,900 yuan. Xiaomi’s orders on the model exceeded 50,000 units in the first half hour since its launch in late March. Tesla is struggling to meet its Eastern opponent, slashing prices on the subscription for its premium driver assistance system. The company’s operating margin, currently down to 8.2% from the 16% last year, is also feeling the stress of the hour.
Current goings-on at Tesla, however, do not support this promise of increased production: this March, their most productive production plant Gigafactory Shanghai reduced its output to better reflect slowing demand. Speculations these days point to another impending round of layoffs, this time at Gigafactory Texas. On the 15th of April, Tesla had announced that it would be shortening production shifts for the Cybertruck, which has added fuel to these rumours. Some believe that these layoffs would amount to as much as 20% of the roster, amounting to tens and thousands of employees.
A few other key players are leaving Tesla of their own accord. Tesla’s executives Drew Baglino and Rohan Patel formally announced their departure from the company on the 15th as well. Baglino had started as a firmware and electrical engineer in 2006, while Patel, former advisor to President Barack Obama, joined in 2016. Tesla’s Chief Financial Officer Zach Kirkhorn also left the company less than a year ago.
(Theruni Liyanage)