Tesla plans to reduce its workforce by over 10% worldwide due to a decline in sales.

The senior VP and VP for public policy and business development at the EV maker have both announced their departures from the company. In a significant move reflecting ongoing challenges, Tesla (TSLA.O) is set to reduce its global workforce by more than 10%, according to an internal memo obtained by Reuters on Monday. This decision comes amidst declining sales and heightened competition in the electric vehicle (EV) market. Adding to the company's management changes, Tesla's senior vice president, Drew Baglino, responsible for battery development, and Rohan Patel, vice president for public policy and business development, both announced their departures from the company on X. Baglino, a key figure in Tesla's leadership team, was among the four members listed on the company's investor relations website, which includes CEO Elon Musk. Responding to Baglino's announcement on X, Musk expressed gratitude for his contributions, stating, \"Few have contributed as much as you.\" The departure of Tesla's senior executives, Drew Baglino and Rohan Patel, signifies significant challenges for the company's growth trajectory, according to Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors. Schulman emphasized that these departures represent a more substantial negative signal compared to the announcement of job cuts. As of December 2023, Tesla, the world's largest automaker by market value, employed 140,473 individuals globally, as indicated in its latest annual report. However, the memo did not specify the exact number of positions affected by the impending layoffs. Sources familiar with the matter revealed that some employees in California and Texas have already received notifications of the impending job cuts. These sources, preferring anonymity due to the sensitivity of the topic, disclosed this information to Reuters. In the internal memo, Tesla CEO Elon Musk emphasized the importance of cost reduction and increased productivity as the company prepares for its next phase of growth. As part of this strategic initiative, Tesla has conducted a comprehensive organizational review, resulting in the decision to reduce its global workforce by more than 10%. Tesla has not yet responded to requests for comment on these developments. Concurrently, its shares experienced a decline of approximately 3.2% in midday trading. The announcement of layoffs follows a previous Reuters report on April 5, revealing that Tesla had shelved plans for an affordable car priced at $25,000, known as the Model 2, which investors anticipated would drive mass-market growth. Musk had previously announced that production of the Model 2 would commence in late 2025. In response to the Reuters report, Musk posted a statement on his social media platform, X, alleging that Reuters had disseminated misinformation without providing specific inaccuracies. However, Musk has not addressed the topic of the Model 2 since then, leaving investors and analysts to speculate on its future. Additionally, Reuters reported on April 5 that Tesla would pivot its focus towards self-driving robotaxis based on the same compact-car platform. Musk cryptically announced on X that evening: \"Tesla Robotaxi unveil on 8/8,\" without providing further details, prompting further anticipation and discussion among stakeholders. Experts in self-driving cars and regulation suggest that Tesla may still be years away from launching a fully autonomous vehicle with regulatory approval. This recent announcement marks the second instance where Musk has indicated a reduction in headcount by 10%. In 2022, Reuters reported Musk expressing concerns about the economy and the need to cut a similar percentage of jobs, although Tesla did not specify the exact number of jobs affected. Despite Tesla's share price declining by about 33% this year, legacy automakers like Toyota Motor and General Motors have seen their shares rally, benefiting from a gradual consumer transition away from traditional internal combustion engine vehicles. BP has also downsized its EV charging business by over 10% after an unsuccessful bet on rapid growth in commercial EV fleets, highlighting the broader implications of slowing EV demand. At Tesla's German plant, a newly elected works council of labor representatives was not consulted ahead of the recent announcement, according to Dirk Schulze, head of the IG Metall union in the region. Analysts interpret these layoffs as indicative of Tesla's challenges in sustaining growth. Craig Irwin from Roth Capital suggests that Tesla's maturation as a company may hinder its previous growth trajectory, with layoffs signaling management's expectation of weak demand persisting. Moreover, analysts from Gartner and Hargreaves Lansdown view these cuts as a response to cost pressures amid the carmaker's investments in new models and artificial intelligence.

Tesla's global vehicle deliveries in the first quarter experienced a decline for the first time in nearly four years, despite price cuts aimed at stimulating demand. The company's slow model refresh cycle, coupled with high interest rates impacting consumer spending, has further compounded these challenges, particularly in the Chinese market. To address margin erosion, Tesla is exploring strategies to boost profitability, including expanding into the Indian market and optimizing operations in major auto markets worldwide. Tesla's gross profit margin in the fourth quarter hit a four-year low, reflecting ongoing pricing pressures. Additionally, the company's previous workforce reduction in New York in February last year underscores its periodic restructuring efforts. The latest round of job cuts was first reported by tech publication Electrek.

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