Is Tesla laying off 10% of its workforce a harbinger of disaster?

by admin, Monday, 6 June 2022 (2 months ago)

Earlier, there were reports that Tesla CEO Elon Musk “feels very bad” about the US economy He claims that the car industry could be a “canary in the coal mine” for a while. This seems to indicate that the car industry is in recession. However, there is no indication of significant concern from the major players in the automotive industry. For this reason, it already has advanced plans to cut 10% of Tesla’s workforce.

Tesla Shanghai Gigafactory
Tesla Shanghai Gigafactory

The canary in the mine indicates a harbinger of danger. The canary is more sensitive to harmful gases than the human body, so the canary becomes the alarm for the miners. Tesla needs to cut about 10%. its workforce, Musk said in an email to executives. He later told employees that the company’s white collar class was very inflated and had to “peel”. However, he would continue to hire workers to build cars and batteries.

Musk’s body language looks different

Musk’s warning is the first openly and loudly dissimilar voice in the automotive industry’s current unified stance. The automaker agrees that underlying demand for cars and trucks remains strong despite the global pandemic of two years. A car executive also claims this week that demand is “extremely high”.

“Tesla is not an ordinary canary in a coal mine. “It looks more like a whale in a lithium mine,” Morgan Stanley analyst Adam Jonas said in a research note. Lithium is the metal used in the manufacture of electric vehicle batteries.

“If the largest electric car company in the world warns about jobs and the economy, investors should reconsider their forecasts for profit margins and revenue growth,” he added. Tesla shares closed 9% lower on Friday.

Supply chains are already frustrated

Two years ago, the car industry was hit hard by a pandemic and factories were forced to close. This closure later led to a shortage of semiconductor chips, further hampering car production.

Today, the Russia-Ukraine war has weighed on supply chain disruptions and reduced car sales. According to industry data firm Wards Intelligence, annual new vehicle sales in the United States in May were just 12.68 million vehicles, well below the glory days of 17 million vehicles a year before the epidemic.

However, these issues mainly affect supply, with inflation threatening demand. “The risk of recession is high, so it certainly does not go to extremes,” said Jeff Schuster, chairman of global forecasts at LMC Automotive, on Musk’s warning.

Car companies Uber and Lyft said last month they would cut hiring and spending. Online car dealer Carvana has said it will cut 12% of its workforce.

Less pessimistic

Other companies are also closely monitoring the financial situation. “We are not as pessimistic as Musk, but we are cautious about our recruitment and spending,” said John Dunn, CEO of Clean Energy Systems US, a subsidiary of Plastic Omnium and a maker of fuel and emission reduction systems.

However, industry executives fear a possible recession. “The automotive industry is struggling to release the locked demand that could drive sales in the coming years,” said Tyson Jominy, vice president of automotive data analysis at market intelligence firm JD Power. “The clouds are gathering and could destroy much of the demand.”

Greenhaven Associates, one of GM’s largest equity investors, has investment manager Josh Sandbulte in New York this week for the Alliance Bernstein conference. He believes that the CEOs of the financial sector are much more pessimistic about their prospects than other business leaders.

While Musk’s emails sound much more pessimistic than other manufacturers’ leaders, Sandbulte said he learned not to ignore Tesla CEO’s remarks because “he made a sharp turn when others made a sharp turn. He came back and it turns out that he was right “.

“We are in a chaotic age and honestly economic and business leaders do not share that,” Sandbulte said. “At some point, we will find out who is right.”

The problem of Tesla itself?

Many other automakers have publicly stated that underlying demand remains strong. Reporting monthly sales in the US on Thursday, Ford said its stock continued to change at a record rate.

“Consumer demand is very high at the moment. Manufacturers have no stock, “said Allyson Witherspoon, Nissan’s head of marketing in the United States, at the Reuters Auto Retail conference in Las Vegas on Wednesday.

Industry executives also point out that Tesla has its own problems, including the possibility of hiring much faster and faster than its growth rate.

According to Tesla’s annual report, the company has doubled its workforce since the end of 2019. Morgan Stanley noted that $ 853,000 per Tesla employee is not much higher than the $ 757,000 in the larger Ford.

In addition, Tesla’s sales in the United States are concentrated primarily in California, especially in the San Francisco Bay Area where Silicon Valley companies are concentrated. The wealth of high-tech workers is based on shares and is an important customer base for Tesla. But now, some big tech companies are laying off staff and smaller start-ups are finding it harder to find financing.

Barry Engle, a former Ford and General Motors executive, believes all of this may be true, but Musk’s concerns can not be ignored. Engel founded Qell, a transportation-focused investment company.

“An economic downturn is becoming more and more likely,” he said. “Elon and everyone else knows that. The difference is that as an entrepreneur he is of course more prone to action and to express the truth, even if he is not popular “.

conclusion

There is clearly a recession affecting the car industry. From the point of view of an expert comes recession and Tesla just getting ready. There is no guarantee that this 10% will be Tesla’s latest batch of layoffs. The company may need to lay off more staff for more technical crew.

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