Tesla, Inc. plans to lay off over 10% of its global workforce amidst evolving market dynamics and increased competition within the electric vehicle (EV) industry.
Elon Musk believes that cost reductions and better productivity are needed in each aspect of the company. "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 obtained by CNBC.
"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% globally," the memo said.
Electrek, an online news site, and Handelsblatt, a German business newspaper, earlier reported on the email communication.
CEO Elon Musk conveyed the rationale behind the decision in an internal email, stressing the need to scrutinize every aspect of the company to drive cost reductions and productivity gains. Musk emphasized the challenging nature of the decision, acknowledging the inevitability of Tesla remaining agile and innovative in pursuit of future growth.
The layoffs, which will affect approximately 14,000 employees, signify one of Tesla's most significant organizational restructuring efforts thus far. The move highlights the company's commitment to adapting to changing market dynamics and keeping a competitive edge in the rapidly evolving EV landscape. Tesla had 140,473 employees as of December 2023.
Tesla's decision to downsize its Workforce comes at a critical juncture. Despite its pioneering role in the EV market, Tesla has faced mounting challenges recently. A decline in sales during the year's first quarter and a shrinking profit margin have raised concerns among investors and industry observers alike.
Yet, some of the company's competitors, like BYD, must enter the U.S. market, which means that Tesla's sales may suffer further. Chinese EV makers are making strides at home and slowly but surely grabbing a noticeable share in Europe. Eventually, one can expect them to enter the U.S. market with their premium products.
The automotive industry's EV segment has witnessed a surge in competition, with established players and newcomers alike vying for market share. Tesla's traditional dominance in the sector has been challenged by the emergence of formidable rivals from Asia and Europe, intensifying the competitive pressure on the company.
Tesla's recent financial performance reflects the broader challenges confronting the company. A decline in first-quarter sales, coupled with pricing strategies aimed at boosting demand, has impacted Tesla's profitability.
The company's share price has experienced a notable decline, reflecting investor apprehensions about its prospects. Tesla aims to position itself for sustained growth and success in an increasingly competitive automotive landscape.
It will be interesting to see how the investors react to the move. While investors have welcomed many downsizings recently, Tesla's case may be different. The company faces fewer sales, lower profit, a consistent price drop policy, and Chinese competitors knocking on the door. This downsizing may be seen as an act of panic and a sign of poor performance.
