- Tesla CEO Elon Musk is considering layoffs to reduce costs as demand for electric vehicles (EVs) decreases and oversupply in the market increases.
- The need to cut costs is similar to a strategy Musk used when he laid off staff at Twitter, signaling the challenges faced by Tesla.
- Despite a rise in EV sales, new models introduced by rival automakers have caused a shift from a supply bottleneck to an oversupply, impacting Tesla’s growth.
Additional Coverage:
Tesla CEO Elon Musk is reportedly considering laying off employees in order to reduce costs amid a decrease in demand for electric vehicles (EVs). This news comes as EV production has exceeded demand growth, causing an oversupply in the market. According to anonymous sources cited by Bloomberg, employee performance reviews at Tesla have been reopened, with managers being asked whether each employee’s role is critical. If a manager is unable to provide a convincing answer, job cuts may occur.
The approach taken by Tesla is reminiscent of a strategy Musk used before laying off staff at Twitter. While the scale of potential job cuts may differ, the need to reduce costs is clear. Steve Man, an auto analyst with Bloomberg Intelligence, suggests that Tesla is addressing the challenges posed by price cuts and slower demand in the overall EV market.
Despite the ongoing rise in EV sales, the current market has shifted from a supply bottleneck to an oversupply, especially with the introduction of new EV models by rival automakers. For instance, Ford heavily subsidized every EV sold in the fourth quarter, leading the Model E division to report a negative 98% margin. Tesla itself also predicts notably lower growth in 2024.
As Tesla plans to increase its annual cash outlays for new plants and equipment, the company needs to utilize its existing resources more efficiently. However, the Chief Finance Officer Vaibhav Taneja admitted last month that there is limited scope for further cost reduction in areas such as procurement, logistics, and manufacturing. This has led analysts to speculate that job cuts may be the next step.
Tesla currently employs 140,500 individuals, who collectively sold 1.8 million cars in the previous year. By comparison, Toyota, which is often recognized for its productivity, has 370,000 employees and sold 11.2 million vehicles to dealers. Despite Tesla’s higher average transaction price per vehicle, a Toyota worker generates more annual turnover than their Tesla counterpart.
The main reason for this difference is Tesla’s extensive vertical integration. In addition to operating their own dealerships, Tesla produces various components in-house, including seats. This level of integration is uncommon in the automotive industry, as most carmakers outsource the production of seats to specialist suppliers. While Tesla has invested heavily in areas like robotics and artificial intelligence, these ventures are not expected to yield significant commercial sales in the near future and rely on the core automotive business for financial support.
Although cutting jobs is an undesirable option, analysts believe it may be necessary for Tesla to address the current challenges it faces. However, the company has not yet provided any comment on the potential layoffs.