Why has Tesla laid off 10% of its workers? How does it affect the company’s stock market value?
Elon Musk told employees that Tesla would undergo restructuring to cut costs and prepare for “next phase of growth” prompting a selloff of its stock.
Tesla is slashing its workforce by potentially upwards of 14,000 employees, or more than 10 percent of its current staff, according to a memo sent to employees. The CEO of the electric vehicle manufacturer, Elon Musk, said that “there is nothing I hate more,” but the layoffs “must be done.”
“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,” he wrote in the company-wide email, first reported by Electrek. The layoffs will enable the company to be “lean, innovative and hungry for the next growth phase cycle,” according to the billionaire.
Periodic headcount reductions are not new at Tesla and are generally welcomed by investors. However, not this time due to headwinds in the EV market as well as the loss of two top managers after they resigned.
Why has Tesla laid off 10% of its workers?
For the first time since the start of the pandemic in 2020, Tesla reported this month that year-over-year quarterly sales had fallen. The company’s deliveries were down 8.5 percent in the first quarter this year compared with the same period in 2023.
This is despite the EV manufacturer dropping prices throughout last year to drive up demand. Meanwhile competitors saw demand increase for their EVs during the same period. And not just for cheaper models coming out of China but customers are willing to pay a premium for cars comparable to Tesla’s as the company has been slow to update its line.
How are Tesla layoffs affecting the company’s stock market value?
While some analysts view the layoffs as strategic, the size of cull “is pretty big” said Scott Acheychek, CEO of Rex Shares, talking to The New York Times. Additionally, the departure of two senior leaders was seen as “the larger negative signal” by Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, telling Reuters that Tesla’s growth was in trouble.
Battery development chief Drew Baglino, who had been with Tesla for 18 years, and vice president for public policy Rohan Patel, an 8-year veteran, both announced their resignations shortly after the company-wide memo was sent out.
Tesla’s shares dropped 5.6 percent by the end of trading on Monday. The company’s stock is down by 35 percent since the start of the year and near its lowest point in the past 12 months.