Companies often see their stock price jump after announcing job cuts, as Wall Street rallies around the prospects for improved efficiency and profits.<\/p>\n
But that\u2019s not how investors treated the latest news out of Tesla. Shares of the electric vehicle maker tumbled almost 6%, falling to their lowest since May of last year, after CEO Elon Musk told employees the company is eliminating more than 10% of its global workforce.<\/p>\n
\u201cThere is nothing I hate more, but it must be done,\u201d Musk wrote in a memo about the layoffs.<\/p>\n
Tesla shares have been spiraling since the calendar turned, tumbling 29% in the first quarter, the worst period since late 2022 and the third-steepest drop since the company\u2019s initial public offering in 2010. The stock is 60% below its peak reached in November 2021.<\/p>\n
Previous layoffs haven\u2019t drawn such market pessimism. In 2018, when Tesla cut 9% of headcount, shares rose more than 3%. In 2022, the stock plunged 9% on initial reports around layoffs but recovered after Musk made clarifying comments days later.<\/p>\n
The Tesla of today finds itself in a different kind of predicament.<\/p>\n
Earlier this month, the automaker reported a drop in vehicle deliveries in the first quarter, the first annual decline since 2020 when the Covid pandemic disrupted production. In China, Tesla has faced an onslaught of competition from domestic EV makers, including BYD and the phone maker Xiaomi.<\/p>\n
Prior to the layoffs, Tesla had been cutting prices and providing other buyer incentives, leading to likely margin erosion. Last week, the company said it\u2019s slashing the subscription price of its premium driver assistance system, marketed as Full Self-Driving (FSD), by half for customers in the U.S. FSD doesn\u2019t make vehicles autonomous and requires an attentive driver at all times.<\/p>\n
According to the most recent available data from Kelley Blue Book, EV prices across the board were lower by 9.7% year over year in March, thanks to \u201cstrong incentive packages.\u201d Tesla\u2019s prices hit bottom in January, although their prices were edging higher in March.<\/p>\n
Monday\u2019s sell-off wasn\u2019t just about layoffs, as Tesla executives Drew Baglino and Rohan Patel announced they\u2019re leaving the company. Baglino had worked with Tesla since its early years, starting as a firmware and electrical engineer in 2006. Patel joined Tesla in 2016 after working as a senior advisor to former President Barack Obama on climate issues and other matters.<\/p>\n
Musk said in the layoffs memo that \u201cit is extremely important to look at every aspect of the company for cost reductions and increased productivity.\u201d However, analysts and investors see a demand problem,<\/p>\n
According to FactSet, 18 analysts have lowered their price targets on Tesla shares this month, while none have gotten more bullish.<\/p>\n
\u201cJust when you think the news couldn\u2019t get any worse for Tesla, we have EV demand questions that have been popping up over the last few quarters,\u201d Doug Clinton, managing partner at Deepwater Asset Management, said on CNBC\u2019s \u201cSquawk Box\u201d Monday. \u201cWe have questions now about whether they\u2019re going to build the low-cost Model 2, price cuts on FSD.\u201d<\/p>\n
Tesla began to acknowledge earlier this year that 2024 growth might be \u201cnotably lower\u201d compared to the prior year. The company has said it\u2019s between two waves of EV growth but has refrained from issuing guidance for 2024.<\/p>\n
Beyond increased competition and the dynamics of the EV industry, there\u2019s also the unpredictability that comes with Musk.<\/p>\n
The billionaire has faced scrutiny from multiple regulatory agencies over his dealings at X, formerly Twitter, and shareholders have expressed concerns about whether he\u2019s devoting enough attention to Tesla. Musk serves as CEO of SpaceX, owns X, started artificial intelligence venture xAI and runs brain computer interface company Neuralink and tunneling venture The Boring Co.<\/p>\n
Meanwhile, he has repeatedly disparaged undocumented immigrants, ranted against corporate diversity initiatives and reposted false conspiracy theories.<\/p>\n
Musk has previously said that he hadn\u2019t missed any \u201cimportant\u201d meetings at Tesla, and that he wasn\u2019t \u201ctotally missing in action.\u201d<\/p>\n
Tesla didn\u2019t respond to CNBC\u2019s request for comment.<\/p>\n<\/p>\n
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