Mass Effect
The electric carmaker Tesla is laying off more than ten percent of its global workforce, multiple outlets report.
Per Electrek, the mass firings were confirmed in a leaked internal memo to staffers from company CEO Elon Musk, who wrote that “we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than [ten percent] globally.”
“There is nothing I hate more, but it must be done,” Musk added, according to Electrek. “This will enable us to be lean, innovative and hungry for the next growth phase cycle.”
It’s only April, and already 2024 has been a rough year for Tesla. The company’s shockingly low first-quarter vehicle deliveries — though it was predicted to deliver an average of about 457,000 vehicles, Tesla only delivered about 387,000 — prompted one analyst to refer to this as Tesla’s “nightmare” year. A recent report from Reuters, meanwhile, alleged that fierce competition in China has pushed Tesla to give up on its long-hyped Model 2, billed as an affordable, competitive alternative to Tesla’s pricier models. (Musk has denied the report’s claims.)
In short, Tesla’s going through it. And now, amid this tumult, it looks like staffers worldwide are about to be out of their jobs.
Rocky Roads Ahead
The most obvious culprit is a person who kept his job: Musk, whose disastrous acquisition and renaming of Twitter and hard turn into racist conspiracy theories have alienated a huge portion of the public who would have previously been keen to buy a Tesla.
“It got to the point where we felt like we were driving around in a QAnon-MAGA hat, as if Tesla had become a symbol of white supremacy,” one driver said last year of what drove her to sell her Tesla.
According to Reuters, Tesla’s last annual report noted the employment of approximately 140,473 staffers. While the exact layoff is still unclear, firing over ten percent of that workforce, as Electrek notes, means that at least 14,000 workers globally will be getting the axe.
Musk expressed remorse for the layoffs in the company memo, writing that he “would like to thank everyone who is departing Tesla for their hard work over the years.” He then turned his attention to the company’s remaining employees, noting that they have plenty of work ahead of them. (And considering Musk’s recent — though definitely not the first — robotaxi announcement, we’re sure they do.)
“We are developing some of the most revolutionary technologies in auto, energy and artificial intelligence,” Musk wrote in his memo. “As we prepare the company for the next phase of growth, your resolve will make a huge difference in getting us there.”
Tesla has announced layoffs of “more than 10%” of its global workforce in an internal company-wide email. We exclusively reported yesterday that Tesla was prepping a massive layoff.
For the last few months, it has looked like Tesla might be preparing for a round of layoffs. Tesla told managers to identify critical team members, and paused some stock rewards while canceling some employees’ annual reviews. It also reduced production at Gigafactory Shanghai.
Then, over the weekend, we heard rumors that these layoffs were about to happen, which came to us from multiple independent sources, as we reported on yesterday. The rumors indicated that layoffs could be as high as 20%, and in addition we heard that Tesla would shorten Cybertruck production shifts at Gigafactory Texas (despite CEO Elon Musk’s recent insistence that Cybertruck is currently production constrained).
Now those rumors have been confirmed – though with a lower number – in a company-wide email sent by Musk, which leaked soon after it was sent. The full text of the email is below:
Over the years, we have grown rapidly with multiple factories scaling around the globe. With this rapid growth there has been duplication of roles and job functions in certain areas. 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.
I would like to thank everyone who is departing Tesla for their hard work over the years. I’m deeply grateful for your many contributions to our mission and we wish you well in your future opportunities. It is very difficult to say goodbye.
For those remaining, I would like to thank you in advance for the difficult job that remains ahead. We are developing some of the most revolutionary technologies in auto, energy and artificial intelligence. As we prepare the company for the next phase of growth, your resolve will make a huge difference in getting us there.
Thanks,
Elon
Additionally there are reports that some employees have already been locked out of system access.
While we don’t have an exact percentage, “more than 10%” means at least 14,000 employees will be laid off, as Tesla’s employee headcount is somewhere on the order of 140,000 total employees (Notably, Tesla’s headcount has not experienced as much “rapid growth” in recent years as it has in the past, making that line of the email ring somewhat hollow).
Electrek’s Take
One issue I’ve always had with Tesla is that, if anything, it feels like headcount in the company is too low, not too high. There are so many issues that seem to fall through the cracks (both on a high and low level – Tesla owners, have you ever had trouble getting in touch with someone in service?), and I think the reason for this is because Tesla employees are often overworked. This leads to burnout and turnover, a lack of institutional memory, and a lack of ownership for certain problems that don’t get solved.
Tesla owes a lot of its success to its “startup mentality,” where it’s all hands on deck to grow the company that is shaking up a couple of the largest entire sectors on earth – automotive and energy. The fact that it has shaken up these sectors so successfully is proof that this approach has been effective
And that helps in recruiting as well – there are a lot of jobs that claim they are changing the world, but Tesla can really claim that it legitimately is on the vanguard of the changing transportation industry. That’s a great way to recruit the best and brightest, and as a result, the company hasn’t had to worry much about losing talent since it has such a recruitment advantage and can take its pick of the brightest minds out there (though that recruitment advantage could be changing, given Musk’s increasingly distasteful behavior).
However, Tesla is 20 years old now. It’s an enormous and established company. It needs to mature and have more established processes, less turnover, and more security for its employees. These sorts of things help reduce errors and increase morale.
While these layoffs are a reaction to a reduction in sales (but not a loss of money if analysts are to be believed – Tesla is likely still profitable, though we’ll hear more next Tuesday), they can’t be helping with morale.
Remaining employees will wake up to an email from a CEO who is increasingly absent as he spends all of his time addicted to an app he wasted $44 billion on (yet demands more stock while firing 10% of the company), see their already-large workloads get larger, and wonder if the feeling of changing the world is really worth all these newly-apparent downsides. Maybe they’ll wonder if getting poached by the new tech buzzword wouldn’t be so bad.
Which is a shame, because we do need Tesla to keep pushing things forward, and to keep attracting the best and brightest. While Pandora’s box is open and EVs are here to stay at this point, regardless Tesla’s ups and comparatively-rare downs, the rest of the industry is still trying hard to pump the brakes on the transition, even if it means America will be less competitive if they get their way.
Tesla is one of the few entities that is large enough and committed enough to dragging those timelines forward, whether the rest of the industry likes it or not. We need a healthy Tesla, and for that, we need good employee morale.
The news follows a bad quarterly delivery report in which Tesla significantly missed delivery estimates, and had a rare year-over-year reduction in sales. While Tesla does not break out sales by geographical region, the main dip seems to have come from China, where Chinese EV makers are ramping quickly both in the domestic and export market.
Tesla will deliver its quarterly profits report next Tuesday, April 23. Analysts estimate that Tesla will still turn a profit of around 50 cents a share, down from 85 cents a share in Q1 2023.
In previous quarters, Tesla has guided for a “pause” inbetween growth phases, expecting that sales growth would be more modest until the release of next-gen vehicles like the ~$25,000 Model 2 (though Reuters recently reported that Musk wants to shift Tesla’s focus to a robotaxi model, which Musk denied just hours before announcing the robotaxi unveiling event).
Tesla has canceled the long-promised inexpensive car that investors have been counting on to drive its growth into a mass-market automaker, according to three sources familiar with the matter and company messages seen by Reuters.
The automaker will continue developing self-driving robotaxis on the same small-vehicle platform, the sources said.
The decision represents an abandonment of a longstanding goal that Tesla chief Elon Musk has often characterized as its primary mission: affordable electric cars for the masses. His first “master plan” for the company in 2006 called for manufacturing luxury models first, then using the profits to finance a “low cost family car.”
Musk has since repeatedly promised such a vehicle to investors and consumers. As recently as January, Musk told investors that Tesla planned to start production of the affordable model at its Texas factory in the second half of 2025, following an exclusive Reuters report detailing those plans.
Tesla’s cheapest current model, the Model 3 sedan, retails for about $39,000 in the United States. The now-defunct entry-level vehicle, sometimes described as the Model 2, was expected to start at about $25,000.
Tesla did not respond to requests for comment. After the story was published, Musk posted on his social media site X that “Reuters is lying (again).” He did not identify any specific inaccuracies.
Tesla shares tumbled more than 6% following the Reuters’ report but recovered some of the loss after Musk’s post. The stock was down 3.6% at Friday’s market close.
Shortly afterward, Musk posted on X: “Tesla Robotaxi unveil on 8/8,” sending shares back up in after-hours trading.
The stark reversal comes as Tesla faces fierce competition globally from Chinese electric-vehicle makers flooding the market with cars priced as low as $10,000. The plan for driverless robotaxis, which could take longer to deliver, presents a stiffer engineering challenge and more regulatory risk.
Two sources said they learned of Tesla’s decision to scrap the Model 2 in a meeting attended by scores of employees, with one of them saying the gathering happened in late February.
“Elon’s directive is to go all in on robotaxi,” that person said.
The third source confirmed the cancellation and said new plans call for robotaxis to be produced, but in much lower volumes than had been projected for the Model 2.
Several company messages reviewed by Reuters about the decision included one on March 1 from an unnamed program manager for the affordable car discussing the project’s demise with engineering staff and advising them to hold off on telling suppliers “about program cancellation.”
A fourth person with knowledge of Tesla’s plans expressed optimism about the decision to pivot away from the cheap-car strategy in favor of robotaxis, a segment Musk has envisioned as the future of mobility. The source cautioned that Tesla’s product plans could change again based on economic conditions.
Squeezing profits from entry-level vehicles is a challenge for any automaker. But Tesla’s delay in pursuing the car Musk once called his dream made it much tougher because it now faces far more competition in that price range.
While Tesla spent years developing its highly experimental Cybertruck, a pricey electric pickup, Chinese automakers have raced ahead on affordable EVs, grabbing market share, gaining economies of scale and offering consumers bargain prices that Western automakers are struggling to match.
As Chinese EVs surged to challenge Tesla’s dominance, Musk was tending to his sprawling empire, which includes rocket-maker SpaceX, brain-chip developer Neuralink, and social media giant X, which Musk acquired in 2022. Formerly called Twitter, the platform has foundered under Musk’s volatile management, shedding most of its value as the company has lost revenue and advertisers.
Plans for the affordable Tesla have been seen as key to delivering on Musk’s stratospheric ambitions for sales growth. Musk said in 2020 that Tesla aspired by 2030 to sell 20 million vehicles – twice as many as the world’s largest automaker, Toyota, sells today. With the death of the Model 2, it’s unclear how he’ll get there.
Expectations for a $25,000 vehicle have underpinned Wall Street analysts’ more modest, but still ambitious, forecasts for Tesla sales. Those forecasts, according to a Tesla investor-relations document, call for vehicle sales rising to 4.2 million by 2028 from 1.8 million last year.
Musk has wavered on the project before. In a biography of the entrepreneur released last year, author Walter Issacson reported that Musk in 2022 “put a hold on” the entry-level EV plans, reasoning that a Tesla robotaxi would make the car irrelevant. Musk’s advisors urged him to stay the course, the book said.
‘HALT ALL FURTHER ACTIVITIES’
Tesla called the affordable-car project NV91 internally and H422 externally when discussing it with suppliers, according to two of the sources and company messages reviewed by Reuters.
Messages from the unnamed Tesla program manager to staffers referenced those code names in discussing the project’s termination. One of those messages sent March 1 said that “suppliers should halt all further activities related to H422/NV91.”
The sources said they did not know all the reasons behind the decision to kill the project.
In another March 1 message, the manager thanked engineering staffers for their efforts and urged them to document what they had learned.
“I’d like to thank everyone for all your hard work and dedication to pushing boundaries and executing the best design possible given the aggressive constraints we had to work within,” the message said. “We would not want all our hard work to go to waste, so it’s important that we tie things off and document things properly.”
The messages showed meetings on the affordable-car project being canceled. The two sources said some engineers have been reassigned.
Tesla’s timeline and business model for robotaxis remain unclear. Musk has publicly predicted a future of mobility in which driverless taxis could eventually become a more common mode of transport than human-driven cars. He has said Tesla, the world’s most valuable automaker, would be “worth basically zero” without achieving full self-driving capability.
Currently, self-driving cars have only been approved by U.S. and Chinese regulators for tightly limited, experimental use on public roads.
Tesla has yet to prove it can produce an autonomous car despite years of predictions by Musk that one was just around the corner, an expectation that partly underpinned Tesla’s soaring valuation. The automaker faces lawsuits and investigations into crashes involving its Autopilot and Full Self-Driving driver-assistance systems, which are not fully autonomous. Tesla has blamed the accidents on inattentive drivers.
Tesla’s Autopilot woes are among a number of problems that have drawn scrutiny. The automaker faces another investigation into the driving-range estimates of its cars, launched after Reuters reported last year that Tesla had rigged the in-dash range meters in its vehicles to give rosy projections. Reuters reported in December that the automaker blamed “driver abuse” for chronic failures of suspension and steering parts it long knew were defective.
Tesla’s image as a climate-friendly innovator has also suffered with Musk’s tilt toward right-wing politics and polarizing public statements, which have turned away some prospective Tesla buyers, according to surveys and experts.
The automaker reported an 8% year-over-year drop in deliveries on Tuesday, just after its chief Chinese competitor, BYD, reported a 13% gain. Tesla shares dropped 5% on the news, deepening a slide of more than 40% since last July, amounting to a loss of about $400 billion in market value.
Still, Tesla’s market capitalization of $545 billion is higher than the combined worth of the next three most valuable carmakers, Toyota, Porsche and Mercedes-Benz. Tesla’s stock value has long been based on future expectations for mass-market sales and driverless cars rather than its current sales and profits.
RUNNING LATE
The affordable-car project’s cancellation comes as Tesla and other established automakers have been rocked by slowing EV demand growth in the United States and Europe, and cut-throat competition in China.
If Tesla had moved forward with the low-cost car, it wouldn’t have arrived on the market until the latter half of 2025, by the company’s estimate. But the entry-level EV segment is already crowded with compelling models from BYD and many other Chinese brands.
Tesla is late to the segment in part because of a pivotal decision by Musk. In 2020, after releasing its hit crossover, the Model Y, Tesla focused on the highly experimental Cybertruck instead of an affordable car.
Musk unveiled a prototype of the angular, stainless steel-clad truck in 2019 and predicted a starting price of about $40,000. The vehicle finally arrived last year, but the lowest price version of the truck won’t be available until 2025, at a price of about $61,000.
The company has also struggled to work through manufacturing problems, particularly with the truck’s pioneering battery technology. Musk hopes to sell the vehicle in high volumes but warned investors last fall about “enormous challenges” ramping up production and making the vehicle profitable.
“We dug our own grave with the Cybertruck,” he said.
During the same period, BYD has seen its electric-vehicle sales soar in China, growing from about 130,000 to more than 1.5 million, not including its thriving business in plug-in hybrids or its fast-growing exports.
BYD already offers a slew of low- and mid-range models, including its Seagull hatchback for less than $10,000. The Chinese automaker now plans to export that car for more than double that price – but still lower than the target for the cheap car Tesla had planned to build.
(Reporting by Hyunjoo Jin in San Francisco, Norihiko Shirouzu in Austin and Ben Klayman in Detroit. Editing by Marla Dickerson and Brian Thevenot.)