Musk feels bad about economy, needs to cut 10% of Tesla jobs

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Tesla CEO Elon Musk leaves Manhattan federal court after a hearing on his fraud settlement with the Securities and Exchange Commission in New York City. File/ Reuters

Tesla CEO Elon Musk has a “super bad feeling” about the economy and needs to cut about 10 per cent of jobs at the electric carmaker, he said in an email to executives seen by Reuters.

The message, sent on Thursday and titled “pause all hiring worldwide”, came two days after the billionaire told staff to return to the workplace or leave, and adds to a growing chorus of warnings from business leaders about the risks of recession.

Tesla shares fell 9 per cent in US trade on Friday after the Reuters report. The tech-heavy Nasdaq was down about 2 per cent.

Almost 100,000 people were employed at Tesla and its subsidiaries at the end of 2021, its annual SEC filing showed.

The company was not immediately available for comment.

Musk has warned in recent weeks about the risks of recession, but his email ordering a hiring freeze and staff cuts was the most direct and high-profile message of its kind from the head of an automaker.

“Elon Musk has a uniquely informed insight into the global economy. We believe that a message from him would carry high credibility,” Adam Jonas, an analyst Morgan Stanley, said in a report.

“If the world’s largest EV company warns on jobs and the economy, investors should reconsider their forecasts on margins and top-line growth,” he said, citing the Shanghai lockdown, rising battery raw material costs and other factors.

So far, demand for Tesla cars and other electric vehicles (EV) has remained strong and many traditional indicators of a downturn – including increasing dealer inventories and incentives in the United States – have not materialised.

But Tesla has struggled to restart production at its Shanghai factory after COVID-19 lockdowns forced costly outages.

“It is always better to introduce austerity measures in good times than in bad times. I see the statements as a forewarning and a precautionary measure,” said Hanover-based NordLB analyst Frank Schwope.

Many carmakers achieved record profits in 2021, but the economic situation is now more uncertain, he noted.

Musk’s gloomy outlook echoes recent comments from executives including JPMorgan Chase & Co CEO Jamie Dimon and Goldman Sachs President John Waldron. A “hurricane is right out there down the road coming our way,” Dimon said this week.

Inflation in the United States is hovering at 40-year highs and has caused a jump in the cost of living for Americans, while the Federal Reserve faces the difficult task of dampening demand enough to curb inflation while not causing a recession.

Musk, the world’s richest man according to Forbes, did not elaborate on the reasons for his “super bad feeling” about the economic outlook in the brief email seen by Reuters.

It was also not immediately clear what implication, if any, Musk’s view would have for his $44-billion bid for Twitter. US antitrust regulators cleared the way for the deal on Friday, sending Twitter shares up 0.5%. Several analysts have cut price targets for Tesla recently, forecasting lost output at its Shanghai plant, a hub supplying EVs to China and for export.

China accounted for just over a third of Tesla’s global deliveries in 2021, according to company disclosures and data released on sales there. On Thursday, Daiwa Capital Markets estimated Tesla had about 32,000 orders awaiting delivery in China, compared to 600,000 vehicles for BYD, its larger EV rival in that market.

Wedbush Securities analyst Daniel Ives said in a tweet it appeared Musk and Tesla were “trying to be ahead of a slower delivery ramp this year and preserve margins ahead of an economic slowdown.”

Before Musk’s warning, Tesla had about 5,000 job postings on LinkedIn from sales in Tokyo and engineers at its new Berlin gigafactory to deep learning scientists in Palo Alto. It had scheduled an online hiring event for Shanghai on June 9 on its WeChat channel.

Musk’s demand that staff return to the office has already faced pushback in Germany. And his plan to cut jobs would face resistance in the Netherlands, where Tesla has its European headquarters, a union leader said.

“You can’t just fire Dutch workers,” said FNV union spokesperson Hans Walthie, adding Tesla would have to negotiate with a labour union on terms for any departures.

In a Tuesday email, Musk had said Tesla employees were required to be in the office for a minimum of 40 hours per week, closing the door on any remote work. “If you don’t show up, we will assume you have resigned,” he said.

Musk has referred to the risk of a recession repeatedly in recent comments.

Remotely addressing a conference in mid-May in Miami Beach, he said: “I think we are probably in a recession and that recession will get worse.”

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