Tesla is set to downsize its global workforce by more than 10%, according to an internal memo obtained by Reuters on Monday. The move comes amidst declining sales and increased competition in the electric vehicle (EV) market.
As of December 2023, Tesla had approximately 140,473 employees worldwide, as reported in its latest annual report. While the memo did not specify the exact number of jobs to be affected, some employees in California and Texas have already been informed of impending layoffs, revealed a source familiar with the matter who declined to be named.
Tesla CEO Elon Musk emphasized the need to streamline operations and enhance productivity in preparation for the company’s next phase of growth. “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 stated.
Tesla shares experienced a 1.3% decline in premarket trading following the announcement. The company’s stock has dropped by approximately 31% this year, lagging behind traditional automakers like Toyota Motor and General Motors, which have seen significant gains amid a slower-than-expected transition from conventional internal combustion engine vehicles.
The impact of slowing EV demand has also been felt by other industry players, with energy giant BP cutting over 10% of its workforce in its EV charging business due to unmet growth expectations.
Analysts suggest that Tesla’s workforce reduction may indicate a shift from its previous growth trajectory. “Layoffs imply management expects weak demand to persist,” noted Craig Irwin, senior research analyst at Roth Capital.
However, Pedro Pacheco, vice president of research and automotive at Gartner, proposed an alternative perspective, suggesting that the layoffs could be part of cost-cutting measures ahead of the release of new models. Pacheco attributed the slowdown in sales to market saturation following the successful launches of the Model Y and Model 3.
Tesla recently reported a decline in global vehicle deliveries for the first quarter, marking the first such drop in nearly four years. Despite efforts to stimulate demand through price cuts, the company has faced challenges in refreshing its product lineup amid subdued consumer interest and heightened competition, particularly in China.
The company’s gross profit margin has also been impacted by repeated price reductions, particularly in China, where local competitors like BYD and Xiaomi are gaining traction. Tesla recorded its lowest gross profit margin in over four years during the fourth quarter.
This latest round of layoffs follows a 4% reduction in Tesla’s New York workforce in February last year, which was attributed to a performance review cycle. The news of the job cuts was first reported by tech publication Electrek.
