Tesla Inc., the electric vehicle pioneer and market leader, is set to reduce its global workforce by more than 10%, according to an internal memo viewed by Reuters. This decision comes as the company faces declining sales and a heightened competitive landscape in the electric vehicle (EV) market.
Falling Sales and Increasing Competition
The move affects a significant portion of Tesla's employees, with the company employing 140,473 people worldwide as of December 2023.
Specific figures on the job cuts were not disclosed in the memo, but the reduction is part of a broader strategy to enhance productivity and manage costs more effectively.
"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," stated Tesla CEO Elon Musk in the memo.
Tesla's decision reflects broader industry trends, where traditional automakers and new entrants are intensifying the price war in the EV market. Despite aggressive pricing strategies, Tesla's first-quarter vehicle deliveries marked a decline for the first time in nearly four years, signaling a tougher road ahead for the EV giant.
Stock Market Reaction
Following the announcement, Tesla shares experienced a slight dip of 0.3% in premarket trading.
This year alone, Tesla's stock has decreased by approximately 31%, contrasting sharply with gains seen by traditional automakers such as Toyota and General Motors, which have seen their shares increase by 45% and 20%, respectively.
"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.
Tesla’s Strategic Adjustments
The EV sector is currently undergoing a period of adjustment, with companies like BP also reducing their workforce in their EV charging business amid slower-than-expected growth in commercial EV fleets.
This sector-wide slowdown is attributed to several factors, including high interest rates dampening consumer spending on high-value items and a competitive shift in the Chinese market, where local manufacturers like BYD and Xiaomi are introducing more affordable models.
Amidst these challenges, Tesla has been slow to update its older vehicle models.
The company recently scrapped plans for a long-anticipated, budget-friendly car that was expected to significantly boost mass-market growth. This cancellation, coupled with ongoing price cuts, particularly in the competitive Chinese market, has put pressure on Tesla’s profit margins, which hit a four-year low of 17.6% in the last quarter of the previous year.
Tesla is scheduled to report its quarterly earnings on April 23, with the market keenly awaiting insights into how the company plans to navigate the anticipated slowdown in 2024 and beyond.
