Tesla CEO Elon Musk arrives for a bipartisan U.S. Senate Artificial Intelligence Forum at the U.S. Capitol in Washington, DC on September 13, 2023.
Andrew Caballero-Reynolds | Afp | Getty Images
Companies often see their stock prices rise after announcing job cuts, as Wall Street rallies around the prospects of improving efficiency and profits.
But that’s not how investors treated the latest news Tesla. Shares of the electric vehicle maker tumbled nearly 6%, falling to their lowest since May last year, after CEO Elon Musk told employees the company is eliminating more than 10% of its global workforce.
“There is nothing I hate more, but it must be done,” Musk wrote in a note about the layoffs.
Tesla shares have been on a growth spiral since the calendar turned, plunging 29% in the first quarter, the worst stretch since late 2022 and the third-steepest decline since the company’s initial public offering in 2010. The stock it is 60% lower than its peak reached in November 2021.
Previous layoffs have not sparked such pessimism in the market. In 2018, when Tesla cut 9% of its staff, shares rose more than 3%. In 2022, the stock fell 9% following initial news of the layoffs, but recovered after Musk made clarifying comments days later.
Today’s Tesla is in a different predicament.
Earlier this month, the automaker reported a decline in vehicle deliveries in the first quarter, the first annual decline since 2020, when the Covid pandemic disrupted production. In China, Tesla has faced an onslaught of competition from domestic electric vehicle makers, including BYD and phone maker Xiaomi.
Before the layoffs, Tesla had cut prices and provided other incentives to buyers, leading to a likely erosion of margins. Last week, the company said it would cut the subscription price of its premium driver-assist system, marketed as Full Self-Driving (FSD), by half for customers in the United States. FSD does not make vehicles autonomous and requires an attentive driver at all times.
Tesla Model Y, equipped with FSD system. Three front cameras under the windshield near the rearview mirror.
Marco Leong | The Washington Post | Getty Images
According to the most recent data available from Kelley Blue Book, electric vehicle prices across the board were 9.7% lower year over year in March, thanks to “strong incentive packages.” Tesla prices bottomed in January, even though their prices were slightly higher in March.
Monday’s fire sale wasn’t just about layoffs, as Tesla executives Drew Baglino and Rohan Patel announced they will be leaving the company. Baglino has worked with Tesla since its early years, starting as a firmware and electrical engineer in 2006. Patel joined Tesla in 2016 after working as a senior advisor to former President Barack Obama on climate and other issues.
Musk said in the layoff memo that “it is extremely important to examine every aspect of the company to reduce costs and increase productivity.” However, analysts and investors see a demand problem,
According to FactSet, 18 analysts have lowered their price targets on Tesla shares this month, while none have become more bullish.
“Just when you think the news couldn’t get any worse for Tesla, we have questions about electric vehicle demand that have surfaced over the last few quarters,” Doug Clinton, managing partner at Deepwater Asset Management, said on CNBC’s “Squawk Box.” Monday. “We now wonder if they will build the Model 2 at low cost, reducing prices on the FSD.”
Tesla began acknowledging earlier this year that growth in 2024 could be “significantly lower” than the previous year. The company said it is between two waves of electric vehicle growth, but refrained from providing guidance for 2024.
In addition to the increased competition and dynamics of the electric vehicle industry, there is also the unpredictability that accompanies Musk.
The billionaire has faced scrutiny from several regulatory agencies over his dealings with X, formerly Twitter, and shareholders have expressed concerns about whether he is paying enough attention to Tesla. Musk is CEO of SpaceX, owns X, started artificial intelligence venture xAI, and runs brain computer interface company Neuralink and tunneling venture The Boring Co.
Meanwhile, he has repeatedly denigrated undocumented immigrants, railed against corporate diversity initiatives and republished false conspiracy theories.
Musk has previously said he hasn’t missed any “important” meetings at Tesla and is not “totally missing.”
Tesla did not respond to CNBC’s request for comment.
