Tesla Stock Drops Following Employee Layoff Announcement

AlphaAtlas

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In an open letter to employees, Tesla announced plans to cut their workforce by about 7% this morning. The letter written by Elon Musk notes that they grew by 30% last year, suggesting that Tesla may have expanded a little too quickly, and that the staff cut is necessary for Tesla to meet its low Model 3 price targets. Naturally, stockholders reacted negatively to the announcement, and the stock dropped about 10% this morning. Bloomberg notes that this is just another line in the wild history of Tesla's stock price, as it has been extremely volatile over the past 2 years. One of Elon Musk's other companies, Space X, announced plans to lay off about 10% of their staff last week, but that company isn't publicly traded yet. Thanks to YeuEmMaiMai for the tip.

However, some bullish analysts said the job cuts were part of “business as usual,” and a sign that Tesla is trying to rein in its spending. The relentless bull-bear debate on Tesla has recently been focused on how the company would tackle the gradual phase out of a federal incentive on electric cars that had helped to boost the demand for the company’s cars.
 
Wait, they cut jobs to increase profit, and shareholders reacted negatively? Jesus Christ, what do the shareholders want? Talk about mixed messaging.
Their shares are priced like they're a growth tech stock with years of several dozen percentage growth in revenue/year ahead and nearly unlimited demand for the Model 3. Q3 was also supposed to be the beginning of a golden period of earnings.

Now, the warnings indicate the assumptions were wrong.
 
Wait, they cut jobs to increase profit, and shareholders reacted negatively? Jesus Christ, what do the shareholders want? Talk about mixed messaging.

They probably over-hired to begin with in order to get the Model 3 out the door. As they mature they will continue to make moves toward efficiency.
 
They increased their workforce +30% in 2018, so this is about the same as if they had instead increased workforce 21% in 2018 instead.
 
Wait, they cut jobs to increase profit, and shareholders reacted negatively? Jesus Christ, what do the shareholders want? Talk about mixed messaging.

It's in the way they worded it, they said that 'these layoffs are necessary in the hopes that we may post a 'tiny' profit next quarter' After their massively surprising last quarter profit, everyone was expecting ~.5B$ in net earnings, and Tesla just nixed those expectations. About a 3rd of all stock prices is based on future earnings, so when normative statements are made that negatively portray those earnings, stocks take it in the shorts.

I actually see the layoff as a positive for Tesla long term. It tells me that they're almost out of production hell and don't need as much overhead to produce vehicles, long term positive.
 
Wait, they cut jobs to increase profit, and shareholders reacted negatively? Jesus Christ, what do the shareholders want? Talk about mixed messaging.

1) Shareholders want growth potential so that it might attract a bigger fool. We don't live in an age where stock prices are generally related to the value of a company anytime in the near future. Tesla had to ratchet back growth which means some folks will walk away for at least a little bit.

2) They totally ignore the fact that at the last few big auto shows this year saw the announcement of several viable electric vehicles to compete with tesla, as well as a whole bunch of credible promises from the big name makers of swamping them in 2021. There's no way tesla survives that without losing market share. Everyone is shwoing up to slice up the tesla pie.
 
They probably over-hired to begin with in order to get the Model 3 out the door. As they mature they will continue to make moves toward efficiency.
They were initially behind schedule because large parts of their automated facilities were behind schedule, they are now caught up if not ahead of schedule and those automated assembly lines are up and running, so a fair part of the staff they have on hand are redundant. In regards to the layoffs in the SpaceX department that has been publicly listed as per California law, most of those jobs seem to be senior positions regarding propulsion, structures, and composite materials, but they are letting people go from all over but most of it is middle management so they are streamlining.
 
Figured it would have something to do with their crap QC and crap used cars which are no longer CPO.
 
The entire auto industry is also down in sales, I wouldn't be surprised if Tesla is effected as well. Turns out most people can't afford a $35k electric car, at minimum.
 
The entire auto industry is also down in sales, I wouldn't be surprised if Tesla is effected as well. Turns out most people can't afford a $35k electric car, at minimum.
Except they're selling it for $44K minimum...
Also, the subsidies are gone. This probably won't even allow them to keep the price at $44K, let alone reduce it to $35K. Tesla is screwed.
 
They probably over-hired to begin with in order to get the Model 3 out the door. As they mature they will continue to make moves toward efficiency.

Yea, its pretty typical in manufacturing since the Model 3 had a lot of production issues and they had too much overtime that they had to hire more. Now that a lot of the early production issues are solved and the backlog is reduced it was time for them to cull the excess.
 
Looks like they may potentially be gearing up to start producing the lower margin base models in a few months, gonna need to tighten the belt if they wanna pull it off.

Not to mention the financial strain from overseas logistics while cars are in transit across the ocean, and I believe they're making a massive loan repayment. And of course the federal credit running out means they should work on raising the margins in other ways to make up for it.

On the other hand, they did mass hire 30% more people last quarter to rush cars out faster for Q3, and now some of that workforce might be sitting idle, and efficiencies may have made less labor necessary to perform the same production rate.

So could be efficient to divert some of those resources toward other areas such as service and repairs for example, they need to get a handle on that area so it catches up to their 93% growth rate for the year.

Could be good time to buy unless we got a recession coming per some predictions, who knows, but it feels like a risky time for stock investment in general. Good luck to our economy, scary times.
 
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I don't own Tesla stock - but my guess is investors are seeing less revenue potential from the company for the next few years. If they announced they were adding 10%, that would be a bullish comment and indicate they think there is growth coming.
I'm with the other people on the thread - the cars are too expensive for most people. I've been in a few Tesla vehicles and thought they were a nice ride. However, my budget for a new car is under $25k - and I plan on keeping that vehicle for at least 10 years. I don't see Tesla hitting my price point anytime soon.
Hell, my wife had to get a new vehicle this year. She got a well-equipped Subara Forester for $24k. We tried to get less features - but they told us we were buying the low end model. I guess I remember paying extra for power windows and an am/fm stereo.
 
Nothing says "expanding production to meet demand" like a 7% workforce layoff.
 
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