Tesla fires 10% of its workforce, marking the beginning of its end

It’s the beginning of the end for Tesla. Or, at least for now, the start of a new spending review process in response to the plunge in sales - and turnover.

Tesla (TSLA) is about to lay off more than 10% of its workforce globally. This was reported on Monday by Reuters, which read an internal note at the company which is currently grappling with a drop in sales and the consequences of a price war in the electric car sector.

“Every five years or so, we need to reorganize and rationalize the company for the next phase of growth,” commented CEO Elon Musk.

The world’s largest vehicle manufacturer by market value had 140,473 employees worldwide as of December, according to its latest quarterly report.

Is this the beginning of the end for Tesla?

Elon Musk’s electric vehicle company has dominated the electric car debate for years now. As of 2022, Tesla had a 62% share of the electric vehicle market in the United States. But times are tough, and Monday’s announcement that Tesla will lay off more than 10% of its staff, or 14,000 people, is proof of that. Meanwhile, over the past year Tesla shares are down 37%.

In 2023, Tesla’s market share for electric vehicles fell to 55% in the United States. It is also rapidly losing ground in China.

What is happening is an exemplary case of how the market economy works. Although Tesla was one of the first to produce and sell electric vehicles on a large scale in the mainstream market, other companies have now caught up and appear poised to surpass it, just as interest in the electric vehicle sector begins to slow.

Difficult times for Tesla, therefore. Global automakers have begun cutting investments in electric vehicles despite year-on-year sales growth. Demand for electric vehicles is weakening globally, making mass layoffs an unfortunately necessary move for Tesla to cut costs amid a weaker growth outlook.

This shows that Tesla is not immune to the slowdown in the electric car market and that it is forced to cut costs to remain competitive with the new Chinese companies that operate with a competitive advantage linked to costs of around 30% compared to Tesla and other historic automakers, according to a recent UBS report.

The reasons behind Tesla’s weakness

There was a time when Tesla could boast a technological advantage over its competitors, who struggled to increase their production capabilities.

IIn the past, Musk succeeded in defeating "traditional" car brands that were trying to sustain their business based on gas-guzzling internal combustion engines, but today these brands have caught up. Automotive companies Hyundai and Kia are Tesla’s main competitors in the US market.

If nothing else, the newly announced layoffs tell us that the electric vehicle market is maturing and that people no longer automatically turn to Tesla when they want to buy an electric car.

It was inevitable that Musk’s company would face a new wave of pressure generated by its competitors.

If it is true that those who make the first move gain an enormous advantage, it is also true that the automotive market is hypercompetitive, with enormous spending capacity. No one - perhaps, except Musk - expected that Tesla could maintain its market share above 75% once the competition finally woke up.

Original article published on Money.it Italy 2024-04-16 17:17:48. Original title: È l’inizio della fine per Tesla. Musk licenzia il 10% dei suoi dipendenti, ma è solo l’inizio