Since Musk announced a 10% global layoff in the middle of last month, the personnel turmoil within Tesla has not calmed down because of this.
According to relevant sources, Tesla's internal layoffs have been carried out several rounds, and seven or eight executives have left in a row in the past 20 days, with an average of one executive leaving every three days.
In China, the situation is equally serious. Following the first round of layoffs around sales positions in April, the second wave of layoffs in Tesla China is on the way. It is reported that the layoffs involve a wider range, covering a number of key areas such as customer service systems, engineering departments, production lines and logistics teams, with the proportion of layoffs generally around 20%, and the proportion of layoffs in individual departments is as high as 50%.
In response to the layoffs, Tesla China has not responded for the time being. But Musk himself said in an open letter that over the years, the company has grown rapidly, opening several factories around the world, and with this rapid growth, there has been a duplication of roles and job functions in some areas. "When preparing for the next phase of growth, it is extremely important to look at all aspects of the company to reduce costs and increase production." In other words, Tesla is working to reduce costs and increase efficiency.
Tesla's sales are sluggish, especially in China
Weak sales are a big part of Tesla's largest layoffs in history.
On April 23, Tesla released its financial report for the first quarter of 2024. According to the data, Tesla's operating income in the first quarter of 2024 will be $21.301 billion, down 8.69% year-on-year and 15.36% month-on-month, which is lower than market expectations, and this is also the first year-on-year decline in operating income since 2020.
In terms of profits, Tesla's performance was also not optimistic, with a net profit of $1.13 billion in the first quarter, down 55.07% year-on-year, lower than the market expectation of $1.9 billion. Tesla's gross margin was 17.4% in the reporting period, compared to 17.6% in the previous quarter. Tesla's free cash flow was -$2.53 billion in the reporting period, compared to $2.06 billion in the previous quarter, which is Tesla's first negative since 2020.
This unsatisfactory financial report is mainly due to the poor performance of car deliveries. In the first quarter of this year, Tesla delivered 386,000 new cars worldwide, down 8.5% year-on-year, lower than Wall Street's forecast of 449,000. This is the first time Tesla's deliveries have fallen below 400,000 units since the third quarter of 2022, and the first quarterly delivery decline since the second quarter of 2020.
The decline in sales in China was particularly significant. On May 7, data released by the Passenger Association showed that in April, Tesla's wholesale sales in China were about 62,200 units, a year-on-year decrease of nearly 18% and a month-on-month decline of more than 30%. As of the first quarter of 2024, Tesla's market share in China fell to about 6.7% from 10.5% in the same period last year. At the same time, in seven of the past eight quarters, Tesla's production has exceeded sales, and inventory pressure has been increasing, and cash flow has been tight.
In contrast to Tesla's decline, there is a strong growth of domestic new energy vehicle brands. According to the data of the Passenger Car Association, from January to April this year, the sales volume of the domestic new energy passenger vehicle market increased by 32.4% year-on-year.
Some analysts believe that the reason for the strong contrast between Tesla and the delivery volume of Chinese new energy brands is that as the Federal Reserve continues to raise interest rates, the sales of the automobile industry have entered a cyclical trough, and the higher interest rate level directly affects the demand for cars by American consumers; On the other hand, for Tesla's different models and prices, China's new energy vehicle companies have brought higher cost performance and the same excellent intelligent driving experience, either with higher product configurations in the same price range, or with the same configuration at a lower price.
In order to save sales, Tesla is trying to maintain market competition by cutting prices on a global scale. In the United States, Tesla announced on April 20 that the price of the Model Y, S and X models was reduced, with an average reduction of about 2,000 US dollars (about 14,200 yuan), of which the cheapest version of the Model Y fell to a record low of 42,990 US dollars (about 305,100 yuan). In the Chinese market, Tesla announced on April 21 that it would cut prices by 14,000 yuan for all models, with the Chinese-made Model Y starting at 249,900 yuan, a record low, the Model 3 starting at 231,900 yuan, the Model S starting at 684,900 yuan, and the Model X starting at 724,900 yuan.
How much will the price cut help Tesla's sales? Maybe it's not as big as it seems. Tesla's wholesale sales of electric vehicles in China fell 18% year-on-year in April, according to data released by the China Passenger Car Association, indicating that the price cuts have not provoked new demand. Compared with the sales boost, the impact of the price cut on Tesla's financial situation may be more far-reaching.
The "second-in-command" returned to China
Recently, Zhu Xiaotong, senior vice president of Tesla's automotive business, will be transferred back to China from Tesla's Texas headquarters, and an unofficial announcement of personnel changes has attracted widespread attention in the industry.
According to the data, Zhu Xiaotong joined Tesla Motors in April 2014 and led the layout of Tesla's super charging stations in China and the production of the Shanghai Gigafactory.
At the end of 2022, Zhu Xiaotong was transferred to the United States to take over sales, service and supervise the delivery of factories in Europe and the United States, becoming the de facto head of Tesla's car business. In April 2023, Tesla reorganized its senior management, and Zhu Xiaotong was promoted to senior vice president of automotive business, becoming one of Tesla's four senior executives and entering Tesla's global core management.
In addition to Musk and Zhu, Tesla's other two top executives are CFO Zach Kirkhorn and Andrew Baglino, senior vice president of powertrain and electrical engineering. Kirkhorn resigned last August and was replaced by Vaibhav Taneja.
At that time, Musk was busy running other companies and rectifying the newly acquired Twitter, and Zhu Xiaotong's power was further expanded, taking charge of Tesla's sales business in North America and Europe, becoming the de facto head of Tesla's car business, and the second person after Musk.
In recent months, Musk has retaken the North American car sales business from Zhu Xiaotong, who is no longer in charge of the North American business. It is not difficult to see from all indications that Musk is shifting his personal focus to Tesla and gathering power through various adjustments.
Putting aside Musk's personal factors, Zhu Xiaotong's possible return to Tesla's China region is more like a key step for Tesla to focus on the Chinese market from a strategic point of view.
In the critical period of declining sales and increasing pressure in China, Musk urgently needs a capable player who is well-versed in the Chinese market to save the decline. Who else inside Tesla is more familiar with the Chinese market than Zhu Xiaotong?
We will make every effort to promote the implementation of FSD in China
Another purpose of Tesla's layoffs and cost reduction and "recall" Zhu Xiaotong may be to fully promote the implementation of FSD in China.
FSD is the premise and foundation for the development of Robotaxi, and it is also the core of Tesla's realization of full self-driving. In terms of Tesla's timeline and production schedule for building prototypes, Robotaxi takes precedence over the $25,000 budget model. At the end of April, Musk visited Beijing to promote FSD's entry into China, and Zhu Xiaotong also accompanied him.
At present, Tesla is trying to do everything possible to improve the contact rate between FSD and users. Such as test drives, 30-day free trials, continuous price reductions, etc.
As a key growth pole for Tesla's profit-boosting, FSD's value has been proven in the U.S. market. In the first quarter of this year, under the premise of a sharp decline in sales and revenue, Tesla relied on FSD-related revenue to stabilize the gross profit margin. Taking Tesla's sales data in 2023 as a reference, Tesla's sales in China account for about 1/3 of the total sales and 1/5 of its revenue.
On the first-quarter earnings call, Musk released a positive signal of FSD's entry into China, saying that "after the approval of the regulatory process, FSD will be expected to enter China." ”
On April 28, Musk visited China and was received by government leaders. On the same day, the "Notice on the Testing of 4 Safety Requirements for Automotive Data Processing (First Batch)" was released, which included Tesla. Although this notification document is to test the data security compliance of intelligent networked vehicles, and does not represent the final drop of FSD's entry into China, it also reveals some signals, "There is basically no question of 'can' for FSD to enter China, but a question of speed and slowness." ”
However, there are still many challenges to the implementation of FSD in China. Musk previously estimated that the cumulative mileage of FSD will exceed 6 billion miles to meet the requirements of global regulators. Judging from the data released by Tesla on April 6, the actual test mileage of FSD is 1 billion miles, which is only 1/6 of the whole process. Whether it is at the technical level or in terms of liability standards, the compatibility of FSD and Robotaxi on Chinese roads is still full of unknowns.
From layoffs, price cuts, to moving out of the "rescuer" Zhu Xiaotong, to fully promoting the implementation of FSD in China, it can be seen that Musk's good intentions to try to reverse the situation can be seen. However, Tesla's current sales decline is a systemic problem, which has been affected by the environment, market, product line and other aspects. When FSD will be implemented in China and when low-cost electric vehicles will be produced in China will be key nodes that will determine Tesla's development prospects in China.