Tesla (TSLA), the world’s most valuable electric carmaker, will cut 10 percent of its workforce and pause hiring because CEO Elon Musk has a “super bad feeling” about the economy, he said in an internal email to Tesla executives, Reuters reported today (June 3).
The email was sent on June 2 and titled “pause all hiring worldwide.” In addition to a hiring freeze, Musk said Tesla needs to fire 10 percent of it existing employees to cope with a looming business slowdown, according to Reuters.
Tesla employed about 100,000 people globally at the end of 2021, according to the company’s Securities and Exchange Commission filing. A 10 percent layoff would translate into about 10,000 workers. Tesla was not immediately available for comment.
Musk’s message came two days after he ordered all Tesla employees to return to the office for at least 40 hours a week or leave. Now in light of the hiring freeze announcement, analysts say the return-to-office directive could actually be a disguised layoff.
“They are able to get rid of people with attrition, or without having to actually have a layoff,” Jason Stomel, founder of Cadre, a tech job placement firm, told Reuters. “[Musk] knows there’s a percentage of workers who are just not going to come back.”
Recession fear and China lockdown turmoil
The Tesla CEO didn’t elaborate the reasons for his “super bad feeling” about the economy. It’s not the first time he’s sounded an alarm on an economic downturn. In late May, when asked by a Twitter user whether the U.S. economy was entering a recession, Musk replied, “Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen.”
A number of Tesla analysts have recently slashed their price target for the EV maker’s stock, all citing production challenges at the company’s Shanghai Gigafactory in China and reduced demand due to China’s Covid lockdown policies.
In May, Wedbush Securities analyst Dan Ives slashed his price target for Tesla by 29 percent—from $1,400 to $1,000)—citing “hard to ignore” obstacles in China. Analysts at Daiwa Capital and Piper Sandler also cut their targets by about 20 percent.
Tesla’s Shanghai factory, which delivered nearly half of its global orders in 2021, has been partially closed since late March due to a citywide lockdown. Production resumed at about 50 percent capacity in late April, but Tesla struggled to bring its assembly line to full speed because of a shortage of raw material and parts.
Shanghai’s Covid lockdown was lifted on June 1, but two months of production disruption will inevitably put a dent in Tesla’s second-quarter financial results and Musk is eager to show investors that he is ready to cut costs, analysts say.
“[Wall] Street knows soft deliveries for June [quarter] already on horizon due to China issues,” Wedbush’s Ives tweeted this morning. “Tesla is trying to be ahead of a slower delivery ramp this year and preserve margins ahead of economic slowdown.”
Reuters reports Musk sent an email to company executives June 2 titled "pause all hiring worldwide," saying that he has a super bad feeling about the economy. My thoughts: Street knows soft deliveries for June Q already on horizon due to China issues/cutting costs prudent now.
— Dan Ives (@DivesTech) June 3, 2022