Elon Musk's Tesla Workforce Cut Could Predict an Auto Industry Recession: Report

Elon Musk's Tesla Workforce Cut Could Predict an Auto Industry Recession: Report

In an email to executives, Musk stated that Tesla needs to eliminate around 10% of its employees.

Elon Musk's Tesla Workforce Cut Could Predict an Auto Industry Recession: Report

Tesla CEO Elon Musk's "very awful feeling" about the economy might be the "canary in the coal mine" moment for the car industry, heralding a recession for an industry whose executives have showed no symptoms of anxiety.

In an email to executives seen by Reuters, Musk stated that the electric automaker needs to eliminate approximately 10% of its employees. He later warned employees that white-collar ranks were overcrowded and that he would continue to hire people to build vehicles and batteries.

Musk's warning is the first loud and vocal dissent in the auto industry's unanimous view that underlying demand for cars and trucks remains robust despite the two-year worldwide slump. This week, one CEO described demand as "sky high."

"Tesla isn't your typical canary in the coal mine. It's more akin to a whale in a lithium mine "In a research note, Morgan Stanley analyst Adam Jonas mentioned the metal used in EV batteries.

"If the world's largest EV firm issues an employment and economic warning, investors should reassess their margin and top-line growth expectations," he added. Tesla's shares dropped by 9%.

The start of the COVID-19 epidemic two years ago caused the shutdown of companies in the car industry. This stoppage contributed to the semiconductor chip scarcity, which hampered vehicle manufacturing even further.

Supply-chain snarls have now driven down sales, worsened by Russia's invasion of Ukraine. According to Wards Intelligence, new-car sales in the United States reached a low annualized pace of 12.68 million in May. That's a big cry from the 17 million every year pre-COVID.

These challenges, however, primarily affect supply, whereas inflation poses a danger to demand.

"The risk of recession is significant, so what he's suggesting isn't extraordinary," said Jeff Schuster, head of global forecasting at LMC Automotive.

Uber Technologies and Lyft said last month that they would reduce recruiting and spending, while online used-car reseller Carvana said it would lay off 12% of its workers.

Other businesses are keeping a careful eye on things.

"We are not as negative as Elon Musk, but we are conservative in our recruiting and spending," said John Dunn, Americas CEO for Clean Energy Technologies, a Plastic Omnium division that manufactures fuel and emissions-reduction systems.

Officials in the industry are concerned about a future recession.

"The auto industry is rushing to the safe harbor of pent-up demand that might carry sales for years to come," said Tyson Jominy, J.D. Power vice president of automotive statistics and analytics.

Susceptible to action

Josh Sandbulte, the chief investment officer of Greenhaven Associates, a money management firm that owns a significant amount of General Motors shares, was in New York City this week for an Alliance Bernstein conference. He claimed that banking CEOs in the region have been significantly more pessimistic than other industry leaders.

While Musk's email appears to be significantly more negative than that of other manufacturing executives, Sandbulte said he has learnt not to disregard Musk because "he has zagged while other people are zigging and he's been proven correct."

"We're in a moment of discombobulation," Sandbulte added, "and honestly, the financial world and the corporate leadership world don't agree." "At some time, we'll find out who is accurate."

Many other automakers continue to claim that underlying demand is solid. While reporting monthly US sales on Thursday, Ford Motor Co said its inventories continue to churn at historic rates.

"Right now, consumer demand is really strong. The inventory is not available from the manufacturers "Allyson Witherspoon, Nissan Motor's US marketing head, stated Wednesday at the Reuters Automotive Retail conference in Las Vegas.

Industry experts also point out that Tesla has its own difficulties, such as maybe employing too quickly in comparison to its growth.

According to the company's annual reports, Tesla's workforce has more than quadrupled since the end of 2019, and Morgan Stanley's Jonas remarked that Tesla's revenue per employee of $853,000 is not significantly higher than Ford's $757,000. (roughly Rs. 58,787,600).

Furthermore, Tesla's US sales are primarily focused in California, particularly in the San Francisco Bay area, which is home to Silicon Valley firms.

Tesla relies heavily on high-tech personnel with stock-based wealth as a consumer base. However, several large IT businesses are suddenly laying off employees, and smaller startups are having difficulty obtaining finance.

All of this may be true, but Musk's concerns cannot be dismissed, according to Barry Engle, a former Ford and GM executive who started Qell, a transportation-focused investment business.

"An economic downturn is becoming more likely," he stated. "Everyone, including Elon, is aware of this. The difference is that as an entrepreneur, he is inherently more prone to taking action and speaking the truth, even if it is unpopular."

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