Elon Musk says he has a “super bad feeling” about the economy. This is having an effect on the stock on Friday.
The Tesla (ticker: TSLA) chief executive wants to slash staff by 10%, according to a company-wide email he sent. According to sources, the email was titled “pause all hiring worldwide.” The company has roughly 100,000 employees worldwide.
In a new email circulating the company, Twitter (ticker: TWTR) there seems to be an indication that the 10% reduction applied to salaried staff, but not to workers on the assembly lines.
Shares seem to be affected by the Friday employment issues. The stock dropped 8.5% in midday trading Friday to roughly $709 a share. The S&P 500 and Dow Jones Industrial Average are off 1.5% and 0.9% respectively.
The challenge for the electric vehicle maker, and its shareholders is the fact that Tesla stock is a growth stock, meaning employment is supposed to be rising not dropping.
The worldwide employee count at Tesla grew by roughly 30,000 in 2021 as vehicle deliveries climbed to roughly 936,000 from about 500,000 in 2020. Wall Street expects roughly 1.4 million vehicle deliveries in 2022.
Some of the growth springs from the two new manufacturing facilities that opened this year, one in Germany and another in Texas.
The idea that Tesla might close 2022 with less employees than it started with is alarming and raises questions about the true demand for EV. Shares of EV start-ups Rivian Automotive (ticker: RIVN) and Lucid (ticker: LCID) dropped 4.5% and 6.3% on Friday.
However, not all auto makers share in Tesla’s concerns about over-hiring.
General Motors (ticker: GM) isn’t immune to any economic troubles Musk might see in the future, but the company is following a different strategy.
“We have been aggressively hiring this year, and so far in 2022, we’ve hired approximately 7,000 new salaried employees across most functions,” GM’s Maria Raynal said. “With an emphasis on technical roles in our engineering, strategy and innovation, digital and IT functions.”
The company closed 2021 with roughly 157,000 employees.
The Tesla news comes a day after Ford (ticker: F) announced its plan to invest billions into Michigan, Ohio, and Missouri and is planning to hire thousands more workers to build EVs plus traditional vehicles.
Ford currently has roughly 183,000 employees worldwide.
Ford and GM, are both increasing their EV efforts from a lower standing than Tesla, which might be the reason behind the different strategy as far as hiring is concerned.
GM sold a couple of EVs in North America in 2021, but plans to be selling roughly one million a year by 2025. GM sells hundreds of thousands of EVs in China through its joint venture with Chinese auto maker SAIC.
Ford has experienced early success with Mustang Mach E and just recently started delivering its electric F-150.
GM stock dropped 3% in recent Friday trading. Ford shares fell 2.9%.
It might seem difficult to reconcile Tesla with the issue of reduced engineering hires, especially in light of the growing demand for EVs and Teslas in general. What’s more, Musk has been quoted to have said that the size of Tesla’s engineering staff was a limiter on growth.
Tesla delivered a record 310,000 vehicles in the first quarter. However, Covid-19 lockdowns in China have negatively impacted all auto production in that country. The impact will probably be felt in Tesla’s second-quarter deliveries. Tesla’s largest assembly plant is located near Shanghai. Current Wall Street estimates peg second-quarter deliveries for the EV giant at roughly 270,000 to 280,000.
According to Cowen analyst, Jeffery Osborne, the delivery estimate might still be high and therefore, he cut his from 309,000 units to 242,000 units. However, Tesla estimates are expected to recover to 400,000 units in the third quarter and almost 450,000 units in the fourth quarter.
The news about a hiring slowdown was not the only thing Musk spoke about in his recent emails. The billionaire founder also gave current employees an ultimatum about their “work from home” status saying, “remote work is no longer acceptable”. Musk asked employees to return to office or risk losing their jobs.
Tesla shares dropped Friday, after climbing 4.7% on Thursday. The stock has dropped more than 30% this year. Inflation and rising interest rates have been a huge challenge for all automotive stocks in 2022. The shanghai production problems seem to only be the beginning for Tesla and negatively affected Musk’s bid to buy Twitter for $44 billion.