Senior resignations and layoffs signal tough times for Tesla

Berlin — Tesla will lay off more than 10% 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 senior vice-president Drew Baglino, who is in charge of battery development, announced his resignation on X on Monday. Bloomberg reported that Rohan Patel, vice-president for public policy and business development, had also resigned.

Both Baglino and Patel were no longer available on Tesla’s internal system, according to people familiar with the matter who asked not to be identified. Baglino was one of four members in Tesla’s leadership team listed on the company’s investor relations website that includes CEO Elon Musk.

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 carmaker by market value had 140,473 employees globally by December 2023, its latest annual report shows. The memo did not say how many jobs would be affected.

Some staff in California and Texas had already been notified of layoffs, a source familiar with the matter said, 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 organisation and made the difficult decision to reduce our headcount by more than 10% globally,” it said.

Tesla did not immediately respond to a request for comment.

Its shares were down about 3% 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 has not 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%. In 2022, Reuters reported that Musk told executives he had a “super bad feeling” about the economy and needed to cut jobs at the carmaker. Tesla never outlined how many jobs it cut in 2022, but its overall employee count rose.

Tesla shares have fallen about 31% so far in 2024, underperforming legacy carmakers such as Toyota and General Motors, whose shares have rallied 45% and 20%, respectively, thanks to a slow consumer transition away from traditional internal combustion engine vehicles.

Energy major BP 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 did not 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 would 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.”

Gartner and Hargreaves Lansdown analysts said the cuts were a sign of cost pressures as the carmaker invested in new models and artificial intelligence (AI).

Tesla reported in April 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 ageing models as high interest rates have sapped consumer appetite for big-ticket items, while rivals in China, the world’s largest car 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, which briefly overtook the US company as the world’s largest EV maker in the fourth quarter, and new entrant Xiaomi.

It is also gearing up to start sales in India, the world’s third-largest car market, in 2024, 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% in the fourth quarter, the lowest in more than four years.

Tesla had laid off 4% of its workforce in New York in February 2023 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. 

Reuters