Tesla to lay off more than 10 per cent of staff globally as sales fall

Tesla (TSLA.O) 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 (EVs).

In a sign of further instability at the EV maker, Tesla’s senior vice president Drew Baglino, in charge of battery development, and Rohan Patel, vice-president for public policy and business development, both announced their exits from the company on X on Monday.

Baglino was one of four members in Tesla’s leadership team listed on the company’s investor relations website that includes CEO Elon Musk. Musk in a response to Baglino’s note on X thanked the executive for his work. “Few have contributed as much as you,” Musk said.

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.

Its shares were down around 3.2 per cent in midday trading.

MASS MARKET

The layoffs follow an exclusive Reuters report on April 5 that Tesla had cancelled a long-promised inexpensive car, expected to cost $25,000, that investors have been counting on to drive mass-market growth. Musk had said the car, known as the Model 2, would start production in late 2025.

Shortly after the story published, Musk posted “Reuters is lying” on his social media site X, without detailing any inaccuracies. He hasn’t commented on the car since, leaving investors and analysts to speculate on its future.

Reuters also reported on April 5 that Tesla would shift its focus to self-driving robotaxis built on the same small-car platform. Musk posted on X that evening: “Tesla Robotaxi unveil on 8/8,” with no further details.

Tesla could be years away from releasing a fully autonomous vehicle with regulatory approval, according to experts in self-driving cars and regulation.

Monday’s letter to staff marks the second time Musk has said he would reduce headcount 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 a similar percentage of 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 33 per cent so far this year, underperforming legacy automakers such as Toyota Motor (7203.T) and General Motors (GM.N), whose shares have rallied 45 per cent and about 20 per cent respectively thanks to a slow consumer transition away from traditional internal combustion engine vehicles.

Energy major BP (BP.L) has also cut more than 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.

WORKS COUNCIL

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.

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.

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 (002594.SZ), which briefly overtook the US company as the world’s largest EV maker in the fourth quarter, and new entrant Xiaomi (1810.HK).

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 laid off 4 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.