Tesla plans to lay off more than 10% of its worldwide employees, as communicated in an internal memo by CEO Elon Musk, to evaluate all aspects of the company for cost reductions and productivity improvements as they prepare for growth.
Tesla's Declining Sales Amid EV Competition
Tesla's shares have suffered, dropping 31% year-to-date. Although electric vehicle sales are still rising globally, Tesla's sales growth has slowed amid intensified competition in the EV market.
In late 2023, China's BYD briefly surpassed Tesla as the world's leading electric vehicle manufacturer. Chinese smartphone company Xiaomi announced plans to sell its first electric car, priced lower than Tesla's Model 3.
Musk has acknowledged that China, home to Tesla's large factory, could also pose strong competition for the company. In November, he stated that some believe the top 10 car companies may eventually include Tesla, followed by nine Chinese car companies, thinking they might be correct. Due to Musk's controversial statements, some potential Tesla customers avoid the brand altogether.
Tesla's Years of Challenges
Tesla announced earlier this month its first annual decrease in vehicle deliveries since 2020, attributed to production disruptions unrelated to demand during the COVID-19 pandemic. First-quarter deliveries declined by 8.5% compared to the previous year, totaling 386,810. Despite offering discounts and incentives to customers, output decreased by 1.7% year-on-year and 12.5% sequentially.
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Tesla recently reduced the subscription price of its premium driver assistance system, known as Full Self-Driving (FSD), for US customers, contradicting Musk's earlier promise that the FSD fee would increase as Tesla introduced more features and functionality to the system. Despite its name, the system does not enable the vehicles to drive themselves and still requires a driver to remain attentive to the road to take control of steering or braking when necessary.
However, the pressure on the company's operating margin persists, dropping 8.2% in the fourth quarter from 16% a year ago. Tesla has cautioned investors to expect that vehicle volume growth this year could be significantly lower than the rate seen in 2023. The company stated it is transitional between two major growth waves.
Logistical hurdles have compounded Tesla's challenges this year, including the disruption by Yemeni Houthi maritime attacks in the Red Sea and Tesla's gigafactory production interruptions following a suspected arson at a nearby electricity substation.
Leadership Departures
Alongside the layoffs, Tesla executives Drew Baglino and Rohan Patel announced their departure from the company on Monday.
The executives' exit coincided with Tesla's efforts to reduce costs and enhance productivity by laying off 10% of its global workforce. With Tesla ending 2023 with over 140,000 employees, the cuts could affect more than 14,000 individuals.
Baglino had been with Tesla since its inception, initially serving as a firmware and electrical engineer in 2006. Patel joined Tesla in 2016 after working as a senior advisor to former President Obama on climate and other policy issues.
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