Market Analysis

Tesla has announced layoffs exceeding 10% of its global workforce, according to an internal memo obtained by Reuters, as it grapples with declining sales and heightened competition in the electric vehicle (EV) market.

CEO Elon Musk remarked, "About every five years, we need to reorganize and streamline the company for the next phase of growth," in a post on a platform called X. Additionally, two senior leaders, battery development chief Drew Baglino and vice president for public policy Rohan Patel, have announced their departures, drawing appreciation from Musk but causing concern among some investors.

This isn't the first time Tesla has reduced its workforce, with Musk previously announcing job cuts in 2022 amid economic uncertainty. Despite this, Tesla's headcount has increased from around 100,000 in late 2021 to over 140,000 in late 2023.

Baglino, a Tesla veteran and a key member of the leadership team, departed along with Patel, prompting mixed reactions from investment experts. Scott Acheychek, CEO of Rex Shares, described the layoffs as strategic, while Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, viewed the departure of senior executives as a troubling sign for Tesla's growth trajectory.

The reduction in headcount comes amid reports of Tesla canceling its much-anticipated affordable car, known as the Model 2, which was expected to drive mass-market growth. Musk's response to these reports has been cryptic, leaving investors speculating about the future of the project.

In addition to the job cuts, Tesla is reportedly shifting its focus to self-driving robotaxis, abandoning the inexpensive car project. However, experts suggest that fully autonomous vehicles with regulatory approval could still be years away.

The news of layoffs and strategic shifts has contributed to a decline in Tesla's stock price, which closed 5.6% lower on Monday. This decline also affected other EV makers like Rivian Automotive, Lucid Group, and VinFast Auto.

Tesla's decision to reduce its workforce follows a report that its global vehicle deliveries in the first quarter experienced a decline for the first time in nearly four years, indicating challenges in stimulating demand despite price cuts.

Analysts attribute the layoffs to cost pressures as Tesla invests in new models and artificial intelligence. Additionally, Tesla's slow refresh of its aging models and competition from cheaper alternatives in markets like China have added to its challenges.

In response to the layoffs, a newly elected works council of labor representatives at Tesla's German plant expressed dissatisfaction, stating that they were not informed or consulted ahead of the announcement.

Despite these challenges, Tesla is preparing to enter new markets such as India and continues to explore opportunities for growth. However, the company's gross profit margin in the fourth quarter was the lowest in more than four years, highlighting the need for strategic adjustments in the face of evolving market dynamics.

Paraphrasing text from "Reuters" all rights reserved by the original author.