Musk calls for 10% job cuts at Tesla due to economic fears

SAN FRANCISCO: Tesla CEO Elon Musk has a “super bad feeling” about the economy and needs to cut about 10% of the electric car maker’s staff, he said in an email to leaders seen by Reuters.

The message, sent on Thursday and titled ‘suspend all hiring globally’, came two days after the billionaire told staff to return to work or leave, and adds to a growing chorus of warnings from chiefs company on the risks of recession.

Tesla shares fell 9% in US trading yesterday after the Reuters report. The tech-heavy Nasdaq was down about 2%.

In another email to employees yesterday, Musk said Tesla would cut the salaried workforce by 10% because it has become “overstaffed in many areas.” But “the hourly workforce will increase,” he said.

“Note that this does not apply to anyone who actually builds cars, batteries or installs solar power,” Musk wrote in the email seen by Reuters.

Nearly 100,000 people were employed at Tesla and its subsidiaries at the end of 2021, according to its annual filing with the SEC. It did not break down the number of salaried and hourly workers.

The Texas-based company was not immediately available for comment.

Musk has warned in recent weeks of recession risks, but his email ordering a hiring freeze and staff cuts was the most direct and high-profile message of its kind from the head of a Car manufacturer.

“Elon Musk has a unique view of the global economy. We believe a message from him would have great credibility,” Morgan Stanley analyst Adam Jonas said in a statement.

US President Joe Biden, when asked about Musk’s comments on the economy, joked that he wished Musk “good luck” on his “trip to the moon”.

Musk, who has criticized the Biden administration for “sidelining Tesla and SpaceX,” replied on Twitter: “Thank you, Mr. President!” He included a link referring to NASA’s award in April 2021 of a $2.9 billion contract to Musk’s space company SpaceX to build a spacecraft to bring astronauts to the moon.

So far, demand for Tesla cars and other electric vehicles (EVs) has remained strong, and many traditional indicators of a slowdown — including increased dealer inventory and U.S. incentives — have not faltered. not materialized.

But Tesla has struggled to restart production at its Shanghai factory after Covid-19 lockdowns forced costly outages.

“It is always better to introduce austerity measures in good times than in bad times. I take these statements as a warning and a precautionary measure,” said Hannover-based NordLB analyst Frank Schwope.

Many automakers made record profits in 2021, but the economic situation is now more uncertain, he noted.

Musk’s bleak outlook echoes recent comments from executives including JPMorgan Chase & Co CEO Jamie Dimon and Goldman Sachs Chairman John Waldron.

A “hurricane is right out there on the road coming our way,” Dimon said this week.

Inflation in the United States is hitting 40-year highs and has caused an increase in the cost of living for Americans, while the Federal Reserve faces the difficult task of reining in demand enough to dampen inflation without causing of recession.

Musk, the world’s richest man according to Forbes, did not elaborate on the reasons for his “super bad feeling” about the economic outlook in the brief email seen by Reuters.

Nor was it immediately clear what implication, if any, Musk’s views would have for his $44 billion Twitter bid. U.S. antitrust regulators cleared the way for the deal on Friday, sending Twitter shares up 2%.

Several analysts recently cut Tesla’s price targets, predicting a loss of production at its Shanghai plant, a hub supplying electric vehicles to China and for export.

China accounted for just over a third of Tesla’s global shipments in 2021, according to company disclosures and published sales data there. On Thursday, Daiwa Capital Markets estimated that Tesla had around 32,000 orders awaiting delivery in China, compared with 600,000 vehicles for BYD, its biggest EV rival in that market.

Prior to Musk’s warning, Tesla had around 5,000 job postings on LinkedIn, from sales in Tokyo and engineers at its new Berlin gigafactory to deep learning scientists in Palo Alto. He had scheduled an online recruitment event for Shanghai on June 9 on his WeChat channel.

Musk’s request for staff to return to the office has already been rebuffed in Germany. And his job cut plan would meet resistance in the Netherlands, where Tesla has its European headquarters, a union leader said.

“You can’t just fire Dutch workers,” FNV union spokesman Hans Walthie said, adding that Tesla would have to negotiate with a union the terms of any departure.

In a Tuesday email, Musk said Tesla employees must be in the office for at least 40 hours a week, closing the door to any remote work. “If you don’t show up, we’ll assume you quit,” he said.

Musk has repeatedly raised the risk of recession in recent comments.

Speaking remotely at a mid-May conference in Miami Beach, he said: “I think we’re probably in a recession and the recession is going to get worse.”

Other companies have cut jobs or are slowing or suspending hiring amid weakening demand.

Last month, Netflix said it laid off about 150 people, mostly in the United States, and Peloton said in February it would cut 2,800 jobs. Meta Platforms, Uber and other tech companies have slowed hiring.