Lately, Tesla (NASDAQ: TSLA) seems to be hitting a bump in the road. First, there was the slowdown in Q1’s deliveries, then deliveries of the company’s much-anticipated Cybertruck had to be paused thanks to an issue with its accelerator. Now, the plot thickens with news of Tesla trimming its workforce by a whopping 10%. The news sent chills down the spines of investors, leading TSLA stock to plunge almost 6%.
However, there may be more to this story than what meets the eye, and Tesla bulls are claiming that the layoffs might actually be a strategic move by Tesla to streamline operations.
The Layoffs
In recent months, there have been rumors of a coming layoff of some Tesla employees. According to a Bloomberg report at the time, Tesla had called for managers to begin identifying the most vital roles for the company. The automaker also delayed some workers’ performance reviews, although the reviews were later rescheduled. However, there seems to be some truth to those whispers about layoffs as Tesla recently confirmed that it’s letting go of a chunk of their workforce, over 10% to be precise.
Now, this kind of news can be unsettling, especially at a time when Tesla is threading in the low. In fact, Wedbush’s senior equity research analyst, Dan Ives, said that Tesla announcing the layoffs at this time is an ominous sign of what’s to come, and that CEO Elon Musk must explain the latest layoffs at next week’s earnings to soothe investors amid a “horror show” for Tesla.
Why are the New Layoffs Different?
It’s important to note that Tesla’s no stranger to conducting layoffs to streamline its operations. The automaker has had periodic layoffs in the past, usually justifying them by saying it was necessary to weed out inefficiencies or trim the fat after a period of rapid hiring. This time, however, it feels a little different. For one, it comes on the heels of a rough quarter for Tesla. Deliveries were down, which is the worst thing that could happen to a car company. Plus, there’s increased competition in the electric vehicle market, especially in China, one of Tesla’s biggest playgrounds. There’s also the resurgence of hybrid popularity, leading to lower EV demand.
It’s undeniable that Musk has a history of reducing staff to cut costs. The billionaire famously cut X’s workforce in half after he purchased the platform in 2022. Tesla even has conducted very recent layoffs. In fact, just last year, the automaker laid off dozens of employees working on its Autopilot service in New York. At the time, the company said the terminations had nothing to do with a union campaign at the facility that had been announced the week before, adding that it had dismissed the employees for their performance issues.
Why Did the Layoffs Happen?
Tesla laid off some employees because it’s likely looking to tighten its belt and get more out of the people that it keeps on board, especially as it experiences very difficult times. The layoffs might target redundant positions or areas with overlapping responsibilities. By eliminating these duplications, Tesla could free up resources, whether human and financial, so they can be better directed towards producing more vehicles or advancing technologies like FSD.
The layoffs might also be a way for Tesla to invest in automation. Maybe some of the laid-off workers were involved in tasks that could be more effectively and consistently handled by robots or AI. While this wouldn’t necessarily mean more cars leaving Tesla’s factories, it could potentially mean faster production lines with fewer bottlenecks caused by human errors.
As for saving money, Managing Partner of the Future Fund, Gary Black, pointed out on X that Tesla laid off around 14,000 employees, and if we assume that those employees get an average salary of $100,000 annually, then by doing the math, Tesla would end up saving around $1.4 billion a year.
Of course, this is all speculation based on what Tesla has said publicly, and there’s still a chance that the layoffs might not have a direct impact on production at all, and could instead be more about cutting costs in other areas. However, TSLA stock investors must also note that producing more cars isn’t just about having more people on the assembly line. Rather, it’s about having the right people in the right places, with the right tools and processes in place. If these layoffs help Tesla achieve that ideal state, then maybe, just maybe, the automaker will see a bump in production after all.
What’s Next for TSLA Stock?
Many people online were talking about how Tesla’s Q1 earnings will be so bad that the company started laying off people to cut losses, but this doesn’t make sense because Q1 is already over, so layoffs now definitely won’t have an impact on the quarter’s results. They might have a positive impact on Q2’s results, or in the long-term, in general, but we can’t expect them to have a drastic impact right away.
Besides, all TSLA stock investors already knew that 2024 wasn’t going to be a great year for Tesla, and Musk himself said so during the company’s last earnings call. Likewise, we know Q1 earnings won’t be great thanks to the lower than expected delivery numbers. But maybe the company managed to recognize enough revenue from FSD to make earnings hurt less, or maybe the energy side of the business, which is doing well and has a lot higher margins, will offset some of Tesla’s losses.
Since earnings will be out next week, and we’re almost sure that they won’t be great, TSLA stock will definitely take a hit. It could fall back to the $150 mark, or maybe even lower. Therefore, for investors who are looking to buy more TSLA stock, it might be wise to wait after earnings. Regardless, Musk and Tesla’s management team must clear everything up in the company’s earnings call next week, and give investors more information on the energy business and where the automotive business is heading.
They could also give TSLA stock investors more clarity on the layoffs, and talk to them about why they happened and how they expect them to help the company in a lot more detail. The auto industry is constantly evolving, with new technologies emerging all the time. Therefore, Tesla needs to maintain strong efficiency and competitive advantage in order to keep going. Layoffs might help Tesla save some money now, but they aren’t a sustainable cost-cutting strategy as they can do more harm than good, especially to the morale of the employees not affected by the layoffs. The company should consider exploring alternative cost-cutting measures; maybe it could negotiate better deals with suppliers, or find a way to automate and streamline administrative processes.
It can also start offering more perks and discounts, like the one-month free trial for its FSD, or the big discount on its Supervised FSD subscription from $199 to $99 a month. By doing that, Tesla can get more people to buy and use its cars. Of course, this is not going to work like magic. The global economy is a fickle beast, and unforeseen circumstances can always ruin the best-laid plans.
To sum up, Tesla’s layoffs may not be the best solution to its problems right now, but they still represent a significant move for the car company. It also shows that even the EV maker isn’t immune to the realities of the market. In the coming days, we might get more updates on the specifics of the layoffs, those who got laid off, and what departments were affected the most. But for now, we wait and see how it all plays out.
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