Yesterday, Tesla CEO Elon Musk announced that he will lay off more than 10% of employees globally, affecting about 14,000 people. After the news broke, Tesla's stock price plummeted by nearly 6%, to its lowest level since May last year.
In the first quarter, Tesla's stock price fell 29% cumulatively. For Tesla, this was the worst period since the end of 2022 and the third biggest drop since its 2010 IPO. This is a 60% drop compared to the peak in November 2021.
The previous layoffs did not trigger such pessimism in the market. In 2018, when Tesla laid off 9% of its employees, the stock price rose by more than 3%. In 2022, Tesla's stock price plummeted 9% due to initial reports of layoffs. However, after Musk made clarifying remarks a few days later, the stock price began to rebound again.
The difference is that today's Tesla is already in a different kind of predicament. Earlier this month, Tesla released first-quarter car delivery data that fell far short of market expectations. This is also the first time since 2020 that the company experienced a year-on-year decline in quarterly sales.
Prior to the layoffs, Tesla had been cutting prices and providing buyers with several other incentives, leading to possible erosion of profit margins. Last week, Tesla also cut the subscription price for fully automated driving (FSD) software by half.
According to the latest data from the Kelley Blue Book (Kelley Blue Book), the price of electric vehicles in the US fell 9.7% year-on-year in March due to strong incentive programs. Tesla's price, on the other hand, bottomed out in January, although there was a slight increase in March.
Monday's sell-off was not only due to layoffs, but also the voluntary departure of Tesla executives Drew Baglino and Rohan Patel. Baglino has been working with Tesla since its early years, working as a firmware and electrical engineer since 2006. Patel joined Tesla in 2016 and previously served as a senior adviser to former President Barack Obama on climate issues and other matters.
“As we prepare for the next phase of the company's growth, it is extremely important to evaluate all aspects of the company to reduce costs and increase productivity,” Musk said in the layoff memo. However, analysts and investors believe Tesla has a demand problem.
Doug Clinton, managing partner at asset management firm Deepwater Asset Management, said on Monday: “Just when you think Tesla's news won't get worse, our electric vehicle demand issues have continued to emerge over the past few quarters.”
In fact, Tesla also acknowledged earlier this year that growth in 2024 may decline significantly compared to the previous year. According to FactSet data, 18 analysts have cut Tesla's target share price this month.