Tesla is set to reduce its global workforce by over 10%, eliminating at least 14,000 jobs in response to slowing demand and competitive pressures.
This significant workforce reduction was disclosed in a memo from CEO Elon Musk, as reported first by Elektrek.
The job cuts are part of a broader initiative by Musk to make Tesla “lean and hungry,” despite his expressed disdain for layoffs, emphasizing the necessity of the move due to overlap in job functions following years of rapid expansion.
Tesla Faces Market Challenges
Tesla, which employs around 140,473 people according to its annual report, has faced a challenging start to 2024.
The company reported delivery of approximately 387,000 vehicles to customers in the first quarter of the year, falling short of market expectations by 13% and marking its first drop in deliveries in nearly four years.
Tesla cited several factors for the decline, including production disruptions due to attacks on shipping routes in the Red Sea and an arson attack on its factory in Berlin. The slowdown is also attributed to a general softening in global demand for electric vehicles.
Musk Defends Tesla’s Performance
Elon Musk has refuted claims that his public persona has negatively impacted Tesla’s sales performance, pointing to similar struggles by competitors such as China’s BYD. Musk highlighted that it has been a tough quarter for the industry overall, not just for Tesla.
In contrast, Ross Gerber, CEO of investment management firm Gerber Kawasaki and a critic of Musk’s leadership, argued that the job cuts are indicative of deeper issues within the company, exacerbated by Musk’s leadership style, a lack of advertising, and intensifying competition.
In an effort to improve profitability, Tesla has repeatedly cut prices, particularly in China, where it faces fierce competition from local manufacturers like BYD and Xiaomi. These price cuts have led to a reduction in Tesla’s gross profit margin, which fell to 17.6% in the fourth quarter, the lowest in over four years.
This drop in profitability and the broader economic challenges have notably impacted Tesla’s stock, with shares falling by 5.6% to $161.48, reducing the company’s market capitalization by approximately $38 billion in just one day.
Industry-Wide Slowdown
The automotive industry analyst Matthias Schmidt commented on the layoffs, noting that they reflect a slowdown in the growth of the electric vehicle market, from which Tesla is not exempt.
This view is underscored by the recent strategic adjustments at other firms within the sector, including BP. The oil giant recently reduced its workforce in its electric vehicle charging business by over 10%, equivalent to more than 100 jobs, citing a need for greater precision and effectiveness in achieving its goals.
Leadership Changes at Tesla
Musk also mentioned the cyclical need for organizational restructuring approximately every five years to prepare for future growth phases. This perspective was shared in a post on the social media platform X, which Musk owns.
Amidst these structural changes, Tesla also announced the departures of two senior leaders, Drew Baglino, the chief of battery development, and Rohan Patel, the vice president for public policy, both of whom received public acknowledgments from Musk for their contributions.
Tesla’s operations span several key manufacturing sites globally, including facilities in California, Nevada, New York, and Texas in the United States, as well as in Germany and China. These strategic locations play a crucial role in Tesla’s global operations and will be pivotal as the company navigates through these challenging times.
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