Elon Musk's dream of a robo-taxi has thrown Tesla into chaos

Elon Musk's subordinates at Tesla Inc. are used to chaos. It's in the field of working for a CEO who sets strict goals and often changes direction abruptly – his more intense emotions described by his biographers as "demonic mode."

But even by Tesla's standards, this year has been bad. The company's shares have fallen more than 40% due to declining sales, confusing product decisions and more price cuts. The company's once-dominant position in China's electric vehicle market is taking a hit. A meeting with Indian Prime Minister Narendra Modi for an expected investment was canceled at the last minute. At the same time, the board has been trying to reinstate the $56 billion payment to Musk, which a judge declared invalid in January, citing that directors are "lazy servants" to the CEO.

On Tuesday, Tesla is expected to report a 40% drop in operating profit, the first decline in revenue in four years. Musk ordered the company's largest ever layoffs and bet his future on a next-generation self-driving car concept called Robotaxi. People familiar with his directives are uneasy about the changes the CEO wants to push, and they asked to be anonymous when discussing internal deliberations.

The idea of creating a robotaxi service has been in the works for at least eight years at Tesla, but the company has yet to build much of the infrastructure needed and has not received regulatory approval to test such cars on public roads. For now, Musk has pushed back plans for a $25,000 mass-market car, which many Tesla investors — as well as some insiders — are pushing for and believe is crucial to the automaker's future.

After the media reported on this strategic shift, key managers, including Drew Baglino, have left. Baglino spent 18 years at Tesla, where he was responsible for Tesla's powertrain engineering and energy businesses.

Musk, 52, has led Tesla out of trouble many times in the past. At $469 billion, the company is still more than nine times the market value of General Motors Co. (gm) or Ford Motor Co. (f). But after losing nearly $350 billion in market value over the past four months, employees, investors and analysts alike are confused and rethinking the company's strategy.

Emmanuel Rosner, an analyst at Deutsche Bank, said last week: "Tesla's stock will need to undergo a painful shift at the ownership base level, and investors who have previously focused on Tesla's EV sales and cost advantage may give up." He downgraded Tesla's stock from buy and lowered its price target by more than a third.

On Monday, the stock continued to fall, falling as much as 5.6% shortly after regular trading began. These stocks are in the midst of their longest losing streak since December 2022.

Musk said on his social media network that the recent move amounts to activating a wartime CEO model. He liked a post after he sent a company-wide email announcing that Tesla would lay off more than 10% of its workforce globally, which means at least 14,000 jobs.

According to people with knowledge of the company's plans, the actual number of people eliminated could exceed 20,000. According to a person with direct knowledge of Musk's order, Musk's reasoning is that Tesla should reduce the number of employees by 20%, as Tesla's car deliveries fell by 20% from the fourth quarter to the first quarter.

For those who are still in Tesla's ranks after this elimination, Musk has radically changed the marching instructions. He announced last week that the company was "taking risks for Autonomy." Whether it's setting a timeline for a prototype or scheduling capacity, a robo-taxi is now more important than a cheaper car he first teased four years ago, a person familiar with the matter said.

For more than a decade, Musk has been talking about a big game about self-driving and convincing customers to pay thousands of dollars for Tesla's marketed Full Self-Driving (FSD) product. The name is a misstatement. "FSD requires constant supervision and doesn't let the vehicle drive itself. But Musk has repeatedly predicted that it is on the verge of meeting the brand's standards. "I was the boy who cried FSD," he said in July.

Musk and top engineers are particularly bullish on the significant changes in the way FSD works right now. Ashok Elluswamy, Tesla's head of self-driving programs, said on X last month that a recently released version was the first to take a new approach to using raw camera footage to make the action of driving a vehicle. This, he wrote, should lead to "unprecedented progress."

But optimism about FSD, and Musk's belief that this new approach could lead to robo-taxis, is clouding the future of Tesla's $25,000 car project. People with knowledge of Tesla's plans have disputed claims that the program has been canceled entirely. All along, the company has been pursuing a low-cost automotive architecture that will support several different types of models, one of which will have no steering wheel or pedals.

While these men confirmed that robotaxi was being prioritized, one of them described the next-generation vehicle project as an effort to reduce costs from components and production methods, and then apply those innovations to cheaper versions of the company's two most popular electric vehicles, the Model Y and Model 3. Teams are particularly focused on applying these cost savings to last year's best-selling model, the Model Y, the world's best-selling model.

It's unclear how much comfort this might bring to investors, as there have been reports that Tesla's answer to affordable options like the Toyota Corolla has been completely canceled. Many fear that the only new model the company will offer to consumers in the five years following the Model Y's debut will be the Cyber Truck, an expensive pickup truck that is difficult to manufacture. Last week, the company recalled nearly 3,900 trucks to fix faulty gas pedals.

Analyst Steve Man said, "Investors, especially institutional investors, are losing patience. "The initial hype around fully autonomous driving and robo-taxis has faded and the pendulum has turned in the opposite direction. ”

Having Tesla reposition itself around robo-taxis is risky. While federal agencies have taken a lenient approach to regulatory technology that has the potential to make roads safer, vetting at the state and local levels has proven difficult to conduct.

Former Arizona Gov. Doug Ducy welcomed Uber (Uber Technologies Inc.'s self-driving cars to the state with "open arms and wide roads" in 2016, but after a fatal collision with a pedestrian in 2018, Ducey banned them. Two years later, Uber sold its self-driving car division.

GM has spent the past six months working to resume robo-taxi testing after a car crashed and dragged a pedestrian in San Francisco. California has also blocked expansion plans for Waymo, owned by Alphabet Inc. (goog), after several accidents in which a vehicle hit a cyclist.

However, Musk is betting that Tesla can make robo-taxis a reality by offering FSD and price cuts to more consumers. He's pushing for test drives and a 30-day free trial to promote the feature, increase revenue, and absorb more camera footage.

Tesla is setting up data centers in Buffalo, New York, and Austin, where it is headquartered, to process the video captured by its vehicles and train its driving systems. People familiar with the projects say the Buffalo project continues, while the Austin project is grappling with cost overruns.

According to a person with direct knowledge of the layoffs, Tesla's rationale for layoffs is not to save money from parts of the company and shift spending to robo-taxis. Teams across the organization — including those committed to autonomy — have been given the same layoff goals, the person said.

According to interviews with more than a dozen affected employees across the United States, the dismissal was poorly organized and executed.

Emails starting with "Dear Employees" are sent to personal addresses after midnight. At Tesla's battery plant in Nevada, many employees started Monday with a jam at the front door. They were moved to a parking lot, where security guards scanned badges to identify who was still working and who had been fired. One person who learned that he had been fired like this said it was the most chilling and humiliating experience of their careers.

Jordana Hernandez, a former service manager in Virginia, wrote on LinkedIn, "A lot of people find that they're fired while they're at work, or when they arrive, think it's another Monday." "That's the painful part. Paid real blood, sweat and tears for a company that has lost no humanity to anyone other than Tesla who has sacrificed more than anyone else. ”

On the Saturday night before the layoffs began, Musk struck a striking pose on the red carpet and joked about who should play him in the upcoming biographical film.

Days later, Tesla Chairman Robyn Denholm criticized a Delaware court for rejecting the board's compensation package for Musk and urging shareholders to reapprove it. Around this time, the CEO discovered that the company was saving money on the money it gave to employees who had just been laid off.

In an email to Tesla's remaining employees, Musk wrote: "I noticed today that the severance pay for some employees is too low. "I apologize for the mistake. It will be corrected immediately. ”