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Tesla (TSLA) to Cut Jobs by 10% to Manage Costs Amid Low EV Sales

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Electric vehicle (EV) titan Tesla (TSLA - Free Report) is slashing its global headcount by 10%. Tesla employed more than 140,000 people by the end of 2023. The latest round of job cuts will affect roughly 14,000 workers as Tesla aims to reduce costs and boost productivity.

Amid shrinking EV sales worldwide and intensified competition, Tesla’s profit margins have been narrowing. The company is resorting to frequent model price cuts in a bid to increase sales. The once enviable growth prospects of the company are getting clouded. TSLA’s CEO Elon Musk emphasized the significance of cost containment measures as the company prepares for its next phase of growth led by next-generation vehicles. The lineup is expected to include a robotaxi and a more affordable model aimed at expanding Tesla's presence in the mass market.

Quoting from the leaked company-wide email sent by Musk, “As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity. As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally. There is nothing I hate more, but it must be done. This will enable us to be lean, innovative and hungry for the next growth phase cycle.”

Some recent developments also hinted at potential layoffs. Tesla paused some stock rewards, canceled some employees' annual reviews and reduced production at Gigafactory Shanghai. Over the weekend, rumors were rife that layoffs were imminent. These rumors suggested that the layoffs could impact up to 20% of its workers. Therefore, the announcement of job cuts is not much of a surprise.

The news follows disappointing first-quarter 2024 vehicle deliveries data released by the company earlier this month. It marked the first year-over-year drop in quarterly deliveries since 2020. Global deliveries slumped to the lowest level in nearly two years on the back of worsening demand for EVs, sparking concerns about the company’s growth prospects this year.

Tesla delivered 386,810 cars (369,783 Model 3 and Y, and 17,027 Model S and X) worldwide in the first quarter, down 8.5% year over year and below the estimate of 457,000 as compiled by FactSet. It produced 433,371 vehicles (412,376 Model 3 and Y and 20,995 Model S and X) during the quarter, down 1.7% from the year-ago quarter.

While Tesla does not break up sales by geographical region, the pressure is especially high in China, the world’s biggest auto market and the U.S. EV maker’s second-largest market by sales, where competition between local EV makers and foreign carmakers is heating up. Tesla’s share in China’s EV and hybrid market segment slid in the first two months of the year.

The company is set to release its first-quarter 2024 results on Apr 23. The company currently carries a Zacks Rank #5 (Strong Sell).

Key Picks

If you wish to invest in the auto space, consider adding stocks like General Motors (GM - Free Report) , PACCAR (PCAR - Free Report) and Ford (F - Free Report) to your portfolio. Each of these companies currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for GM’s 2024 sales and earnings suggests year-over-year growth of 1.8% and 18.2%, respectively. The EPS estimates for 2024 and 2025 have improved by 8 cents and 9 cents, respectively, in the past seven days.

The Zacks Consensus Estimate for PCAR’s 2024 and 2025 EPS has moved up by 3 cents each in the past 30 days. The trucking giant surpassed earnings estimates in the trailing four quarters, with the average surprise being 17.07%.

The Zacks Consensus Estimate for F’s 2024 and 2025 EPS has moved up by 13 cents and 24 cents, respectively, in the past 90 days. The auto giant surpassed earnings estimates in three out of the trailing four quarters and missed in the remaining one, with the average surprise being 59.4%.

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