Musk's core deputies are gone, why did Tesla lay off employees?

According to foreign media reports such as Electrek and Reuters, a few days ago, Tesla CEO Elon Musk announced through an internal letter that more than 10% of the global workforce was laid off.

In an internal letter sent to all employees, Musk said that it is extremely important to review all aspects of the company to reduce costs and increase productivity when preparing for the next phase of the company's growth. As part of this effort, Tesla conducted a thorough review of the company's organization and made the "difficult decision" to lay off more than 10% of its workforce worldwide.

In his internal letter, Musk did not say which departments would lay off employees and when they would begin, but said the company's "rapid growth" had led to duplication of roles and job functions in certain areas.

Tesla Image source: Visual China

It is worth mentioning that after the release of the internal letter, a number of senior employees, including core executives and senior vice president of powertrain and energy engineering, Drew Baglino, also announced their departure. Baglino spent 18 years at Tesla and, like Elon Musk, was one of four members of the leadership team listed on Tesla's investor relations website. He is also Musk's core deputy, often accompanying Musk to attend daily earnings calls, as well as almost every important press conference.

Baglino says goodbye to Tesla

And just last August, the resignation of Zach Kirkhorn, another core executive of Tesla and chief financial officer, also intensified concerns about the successor.

Tesla's last layoffs were in 2022, after Musk said he had a "super bad feeling" about the economy. And according to Tesla's filings with U.S. regulators, Tesla had more than 140,000 employees at the end of 2023, an increase of about 40,000 from the end of 2021. The layoffs are more than 10%, equivalent to the layoffs of more than 14,000 employees.

Some analysts believe Tesla's layoffs are a normal corporate strategy, but Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, believes the departure of key executives is an even more negative sign that Tesla's growth is in trouble.

Affected by the news of Tesla's layoffs, Tesla's U.S. stock fell 5.59% on April 16, local time, to close at $161.48, and its market value evaporated by $30.4 billion (about 220 billion yuan), hitting a new low this year. Since the beginning of this year, Tesla's market value has evaporated and fallen by 35%. By comparison, traditional automakers such as Toyota Motor and General Motors have risen 45% and about 20%, respectively.

Image credit: Straight Flush

Industry insiders believe that the sluggish growth of Tesla's car sales and the decline in performance are the main reasons for the company's accelerated layoffs.

Tesla reported in April that its global car deliveries in the first quarter were 386,800 units, down 8.3% year-on-year, the first decline in nearly four years, as price cuts failed to stimulate demand.

The reason for this is that Tesla has been slow to update its aging models, with the latest model Model 3 being launched seven years ago, and although there have been some facelifts since then, there have been no revolutionary changes.

Moreover, in order to ensure high interest rates, the price of Tesla's models has been at a high level of more than 250,000 yuan for a long time, and it has not provided the matching product power, thus weakening consumer interest in its products.

At the same time, competitors from China, the world's largest car market, are constantly introducing cheaper models and squeezing Tesla's survival space through price wars.

Since 2022, BYD has replaced Tesla as the world's largest new energy vehicle manufacturer, and in the fourth quarter of last year, BYD once again replaced Tesla as the world's pure electric vehicle manufacturer.

BYD Song L

In the Chinese market, due to the pressure of the price war, the floor price of a medium-sized car of the same level as Tesla Model 3/Y has broken through 200,000 yuan, and a large number of cars with larger space, higher configuration and lower price have poured into the market to share the cake, coupled with a series of suspected brake failure accidents, Tesla's brand halo has gradually failed.

According to the data of the Passenger Association, Tesla's retail sales in China in the first quarter of this year were about 132,400 units, a year-on-year decrease of 3.6%, behind BYD and Geely Automobile, with a market share of only 7.5%.

Even so, in order to maintain gross profit margin, Tesla still chooses to increase prices in the Chinese market against the trend, just like other markets around the world. On April 1, Tesla raised the prices of all major Model Y models sold in the Chinese market by 5,000 yuan.

According to the financial report data, Tesla's gross profit margin in the fourth quarter of last year was 17.6%, also the lowest level in more than four years, directly affected by the price war of China's automobiles.

To catch up with sales, Tesla plans to start selling cars produced and exported from German factories in India, the world's third-largest car market, this year, and look for showrooms and service centers in major cities.

On the other hand, Musk had planned to launch a low-end car called the Model 2, which is expected to cost $25,000 and is scheduled to start production by the end of 2025, and investors have been counting on it to drive Tesla's sales growth in the mass market. But according to a Reuters report in early April, Tesla has canceled production of the Model 2.

Hypothetical image of the Tesla Model 2

Subsequently, Musk denied that the Model 2 was canceled on X and said that Reuters was lying, but did not elaborate. He has not commented on the model since then.

It was also reported that Tesla will shift the focus of the Model 2 project to a robotaxi based on the same small car platform. In response, Musk posted on X that the Tesla Robotaxi will be released on August 8, but did not provide further details.

And self-driving cars and regulatory experts have said it could be a few more years before regulators approve the release of a fully autonomous vehicle.

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