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Tesla Pauses Hiring as Musk Aims for 10% Staff Cut

Business Maverick

Business Maverick

Tesla Pauses Hiring as Musk Aims for 10% Staff Cut

A Tesla dealership in Colma, California. (Photo: David Paul Morris/Bloomberg)
By Bloomberg
03 Jun 2022 0

Tesla Inc. Chief Executive Officer Elon Musk said the electric carmaker needs to cut staff by around 10%, noting he had a “super bad feeling” about the economy, according to an internal email seen by Reuters.

The email, titled “pause all hiring worldwide,” was sent to Tesla executives on Thursday, according to the Reuters report.

Shares of Tesla fell 6.7% to $722.85 at 9:44 a.m. in New York, weighing on the broader US market. Representatives from the automaker didn’t immediately respond to requests for comment Friday.

Tesla had not been signaling a slowdown, with two newly opened vehicle assembly plants, record global sales volume in its most recent quarter and a prediction from Musk for “substantially higher” growth later this year.

“Headline is a surprise to us given significant growth path/expansion ahead for Tesla,” Dan Levy, an analyst at Credit Suisse with an “outperform” rating on the stock, said in a research note Friday.

But coronavirus-related restrictions in China have crimped output at the company’s Shanghai plant, leading some analysts to question whether Tesla can meet its goal of 50% annual growth in deliveries. Cowen on Friday cut its estimate for the carmaker’s global deliveries to 1.28 million, down from a previous estimate of 1.35 million.

The report comes at a tumultuous time for Musk and the carmaker he made an EV pioneer. Tesla’s stock has slumped 22% since the billionaire struck a shock deal to acquire Twitter Inc. that now appears to have stalled. Anxiety about the global economy and the impact of China’s Covid-19 lockdown in Shanghai, where Tesla has a factory, have also weighed on the company, which has weathered worldwide supply shortages for components like chips better than most.

Analysts on Thursday said slumping new-car sales in the US were stoking fears of a potential recession.

Musk also joined the heated debate around return to office this week, urging staff at Tesla to get back to their desks, or find work elsewhere.

“The more senior you are, the more visible must be your presence,” Musk wrote, adding that employees were “required to spend a minimum of 40 hours in the office per week.”

“That is why I lived in the factory so much — so that those on the line could see me working alongside them,” he said. “If I had not done that, Tesla would long ago have gone bankrupt.”

Tesla, which has EV factories in the US, China and Berlin, employs around 99,290 staff worldwide, so culling 10% of jobs could equate to losses approaching 10,000 people. The Austin, Texas-headquartered company cut its workforce by 7% — or more than 3,000 jobs — in early 2019, warning that the “road ahead is very difficult” in making electric cars more affordable for the mass market.

Expansion Mode | Tesla's employee count rose 40% last year, the most since 2014

However Tesla increased worldwide employee count by 40% last year, its biggest expansion since 2014, when the company had just over 10,000 workers.

Record Production

The EV maker produced 930,422 cars last year, and delivered 936,222, a record even despite a global chip shortage that’s been ongoing for more than 12 months and Covid-related supply chain snarls. In China, Tesla’s second most important market after the US, the company’s Shanghai factory was shut for three weeks in April. It generally pumps out about 2,100 cars a day.

Tesla shares slumped as much as 2.7% in US pre-market trading. US stock-index futures also turned lower after the Reuters report, with contracts on the Nasdaq 100 sliding 0.5%.

Read more: Tesla’s China Plant Facing More Disruptions From Covid Lockdown

Economic growth in the US looks to have downshifted in recent weeks in the face of headwinds that include rising interest rates and inflation, the Federal Reserve said earlier this week. Price gains may be moderating in parts of the country as households and businesses navigate everything from higher rates to the Russian invasion of Ukraine and ongoing disruptions from Covid infections.

According to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, investors should prepare for an economic “hurricane” as the economy struggles against an unprecedented combination of challenges. “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself,” Dimon said at a conference Wednesday.

In China, meanwhile, the government is pulling out all stops to spur economic growth as Covid outbreaks and lockdowns crush consumer confidence. Part of that plan involves getting consumers to buy more cars, with authorities last month outlining sales tax reductions for passenger cars that will amount to around 60 billion yuan ($9 billion).

China Challenges

Tesla has been going to extraordinary lengths to get production up and running in China, isolating thousands of workers in disused factories and an old military camp to ensure they’re Covid free. The more than 10,000 workers living in Tesla’s Shanghai “factory bubble” have been told to be prepared to stay in the system until June 10, people familiar with the matter said.

In recent weeks, Musk has praised Tesla China employees for “burning the 3am oil” while saying that Americans are “trying to avoid going to work at all.”

A wish to cut jobs at Tesla, just one of several companies Musk heads along with Space Exploration Technologies Corp., or SpaceX, comes as his attempt to take over Twitter looks to have hit a snag. Musk, the world’s richest man with a net worth of about $227.5 billion, has repeatedly cast doubt over whether the acquisition will be completed, even though the parties had agreed to do so this year.

Read more: Musk’s Twitter Bankers Face Potential Hit on Riskiest Debt

Musk became Twitter’s largest individual shareholder in early April with more than 9% of the social media platform. On April 25, Twitter and Musk said they’d reached an agreement for the billionaire to acquire the company and take it private.

Shares in Tesla fell 27% this year through Thursday after posting gains of 50% and 743% in 2021 and 2020 respectively.

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