Tesla will lay off more than 10 per cent of its global workforce, as indicated in an internal memo seen by Reuters on Monday. The company is facing challenges with declining sales and increased competition in the electric vehicle market.
According to its latest annual report, Tesla had 140,473 employees worldwide as of December 2023. The memo did not specify the exact number of jobs that would be affected.
Some employees in California and Texas have already been informed about the layoffs, as per a source familiar with the situation who requested anonymity due to the sensitivity of the matter.
“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.
“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 per cent globally,” the memo added.
Tesla did not immediately respond to a request for comment.
Stock has fallen about 31 per cent so far this year
Its shares were down 1.3 per cent in premarket trading.
The stock has fallen about 31 per cent so far this year, underperforming legacy automakers such as Toyota Motor and General Motors, whose shares have rallied 45 per cent and 20 per cent respectively as consumers slowly transition away from traditional internal combustion engine vehicles.
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Energy giant BP has also reduced over a tenth of the workforce in its EV charging business after a bet on rapid growth in commercial EV fleets didn’t pay off, as reported by Reuters on Monday, highlighting the broader impact of slowing EV demand.
“Tesla is maturing as a company and isn’t the growth story that it used to be,” stated Craig Irwin, senior research analyst at Roth Capital.
“Layoffs imply management expects weak demand to persist.”
Layoffs could be a cost trim ahead of new models
However, Pedro Pacheco, vice-president of research and automotive at Gartner, mentioned that the cuts could be a way for the company to reduce costs before launching new models, as sales slow down following the strong growth driven by the Model Y and Model 3 launches.
Tesla recently reported a decline in global vehicle deliveries in the first quarter for the first time in nearly four years, despite price cuts to boost demand.
The EV maker has been slow to update its older models due to high interest rates affecting consumer interest in expensive items. Meanwhile, competitors in China, the largest auto market, are introducing more affordable models.
Reuters reported that Tesla had scrapped a promised low-cost car, which investors were anticipating for mass market growth. Musk denied the report but did not specify any inaccuracies.
The company is aiming to improve its margins, which have been impacted by frequent price reductions, especially in China where it faces tough competition from local rivals like BYD and Xiaomi.
In the fourth quarter, Tesla recorded a gross profit margin of 17.6 per cent, the lowest in over four years.
Previously, Tesla laid off four per cent of its New York workforce in February last year as part of a performance review and before an employee union campaign was set to begin.
The latest job cuts were first reported by tech publication Electrek.
