TSLA : Witness Start of the Great Descend?
Even before my Sunday post on Tesla has fallen off the chart (click here ! to read), more bad news have emerged from the electric car maker. (see below)
The Great Layoff.
Based off an internal memo, Tesla is laying off > 10% of its workforce.
As it grapples with falling sales and an intensifying price war for EVs.
A war (price) that was kickstarted by Tesla (lest we forget).
Still finding time to take to Twitter, the CEO said “about every 5 years, we need to reorganize and streamline the company for the next phase of growth“.
The last job cut was back in 2022 after the CEO had a bad premonition - a "super bad feeling" about the US economy.
In short, the CEO has deemed the current staff reduction “justified” ?
It was less than a year ago that Tesla's CFO, Zach Kirkhorn, left the company.
This time round, what concerned some veteran shareholders were the departure of 2 senior leaders, (a) Battery development chief Drew Baglino (Tesla veteran and 1 of 4 staff listed on Tesla website) and (b) Vice president for public policy Rohan Patel.
Based on late 2023 filings with US regulators, Tesla had about 140,000 staff.
Making at least 14,000 heads were on the chopping board.
More importantly, the current staff reduction indirectly & unofficially confirms that the budget EV (Model 2) is no longer on production timeline.
Looks like the liar is the CEO himself and not Reuters who first reported of the demise of the budget EV.
Stock Performance.
Comparison - Tesla vs GM vs Toyota
Tesla shares have fallen about -33% YTD. (see above)
It has vastly underperformed against legacy automakers like as Toyota Motor and $General Motors(GM)$.
Whose shares have incidentally rallied +45% and about +20% respectively.
Trouble On The Horizon.
If you think, with the announcement of staff layoff - it will be business as usual thereafter, then will need recalibration of assumption.
Reason being, Tesla again has run foul with labour laws in Germany.
According to IG Metall Union, Head - Dirk Shulze:
A newly elected works council of labour representatives at Tesla's German plant was not informed of the layoff.
Neither were they consulted ahead of the announcement to staff.
It is a legal obligation of management not only to inform the works council but to consult with it on how jobs can be secured.
Would this lead to (a) penalties imposed on Tesla or (b) worsen to a state of standstill between German labour union and Tesla management - causing further stock price tumble?
This pot of trouble is still in the making.
Under The Magnifying Glass.
Tesla's current situation presents a mix of risks and opportunities for investors.
Is Elon Musk's strategy really trying to achieve a balance between costs versus future growth potential? What is on the table?
Risks:
Excess supply & lack of innovation: If Tesla fails to innovate or develop new hit products, its sales could stagnate.
Layoffs: The layoffs clearly indicate inefficiency and weakening demand. It will hurt Tesla's profitability.
Opportunities:
New factory exploration: Building a new factory in India suggests Tesla expects future demand growth in Asia. This could be a positive sign for long-term investors.
Elon Musk's strategy:
Cost-cutting: The layoffs might be a way to streamline operations and become more efficient in the face of competition.
Continued growth: Despite the layoffs, exploring a new factory in India, suggests Tesla believes in its long-term growth prospects.
Overall, for investors:
Tesla definitely face headwinds in the short term. Its long-term prospects depend on its ability to innovate and meet demand.
Consider your own investment horizon. If you're looking for short-term gains, Tesla's current situation might be cause for caution.
If investors are in it for the long haul, and believe in Tesla's future, the stock might still be an option.
Consider entry after Tues, 23 Apr 2024 when the car maker will announce its Q1 2024 earnings (after market closed). Quite certain, there will be more blood spilled!
Personally, I think Tesla may revisit its $123.18 per share price tag, achieved on 30 Dec 2022.
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Please please read this post from JC888. Very important not to be fooled by the various noise coming out from the CEO. Even long time key employees are running ship already.
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