Reactions to Tesla layoffs: 'ominous sign' or 'a positive'?

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Tesla (TSLA) has announced a large reduction in staff on the heels of a disappointing Q1 delivery report, following in the footsteps of legacy automakers and pure-play EV makers, per an internal memo.

In an internal memo seen by Reuters, CEO Elon Musk emailed staff confirming a “more than 10%” headcount reduction following prior reports that layoffs could hit as much as 20% of staff. 

“As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity,” Musk wrote in the memo. “As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally. There is nothing I hate more, but it must be done.”

With Tesla’s headcount sitting at around 140,000 workers globally, the reduction is likely to affect at least 14,000 workers. Tesla stock sank in early trading following reports of the Musk layoff memo.

For Tesla, the layoffs come following a disappointing Q1 delivery report that showed the company missed widely on consensus estimates and built up supply in excess of 46,000 vehicles. This implies that Tesla is feeling the impact of slowing EV demand, both in the U.S. and globally, after reporting its first year-over-year quarterly decline in deliveries since 2020.

Noted Tesla bull Dan Ives at Wedbush Securities warned the layoffs were a negative sign for Tesla, as seen in Monday’s move lower. Ives has a $300 price target and Buy rating on the stock.

“This is an ominous signal that speaks to tough times ahead for Tesla as Musk navigated this Category 5 storm,” Ives said in a comment to Yahoo Finance. “Demand has been soft globally, and this is an unfortunately necessary move for Tesla to cut costs with a softer growth outlook.”

Musk has complained in the past that high rates and higher overall prices are a hindrance to EV adoption and said lower prices are the key to driving growth. Investors and analysts believed part of Tesla’s big growth story would be its long-rumored next-gen vehicle that would start at around $25,000; however, reports last week suggested Tesla had canceled the vehicle. Musk responded to the report claiming it was false and revealed that a Tesla robotaxi debut would be coming on Aug. 8.

Tesla is expected to report earnings on Tuesday, April 23, and will likely provide more commentary on the layoffs, their impact on its financials, and the company’s near-term demand. 

Not all of the Wall Street community sees today’s layoff announcement as necessarily a bad thing. 

“Layoffs would be consistent with actions undertaken by other automakers — and particularly EV pure plays such as Rivian and Lucid — amid slowing EV growth rates,” CFRA analyst Garrett Nelson said to Yahoo Finance. “We view the announcement as a sign of the times, but the fact Tesla is taking action to reduce costs amid the slowdown should be positive for the bottom line.”

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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