Shares of Tesla (NASDAQ: TSLA) has erased all weekly gains on Friday after Reuters reported the company has paused hiring and will cut 10% stuff to cut costs and preserve margins.
Musk Has a ‘Super Bad Feeling’ About Economy
Elon Musk reportedly wrote an email to its employees at Tesla saying he intends to cut 10% of jobs and halt hiring, citing significant concerns about the global economy. Tesla boss told his executives he had a “super bad feeling” about the state of the economy in an email titled “Pause all hiring worldwide.”
The announcement came just two days after the billionaire gave an ultimatum to his Tesla employees, urging them to return to the office or leave the company. In his previous email to Tesla staff, Musk said that everyone who works at the electric car manufacturer has to spend at least 40 hours in the office per week. “If you don’t show up, we will assume you have resigned,” he added.
Daniel Ives, an analyst at the investment firm Wedbush Securities, said Tesla is looking to stay ahead of “a slower delivery ramp this year and preserve margins ahead of economic slowdown.”
“Street knows soft deliveries for June Q already on the horizon due to China issues/cutting costs prudent now,” Ives wrote. The analyst expects to boost deliveries in 2023.
Tesla Facing Other Headwinds
Tesla CEO has pushed back the Tesla AI Day to September 30, suggesting that the carmaker could develop a prototype of Optimus by that date – a humanoid robot that can carry items around a Tesla factory and address global labor shortage challenges.
Musk postponed the Tesla AI Day less than two weeks after he first announced the event and scheduled it for August 19.
Tesla employed around 100,000 workers at the company and its divisions at the end of the last year, according to the carmaker’s annual filing with the U.S. Securities and Exchange Commission (SEC).
The demand for Tesla cars and other companies’ electric vehicles has remained resilient for the majority of 2022 as most of the indicators that are suggesting a downturn are yet to materialize.
On the other hand, Tesla has been facing challenges in its Chinese market after struggling to restart production at its Shanghai plant due to China’s zero-COVID policy that shut down numerous factories for weeks.
Cowen Research analyst Jeffrey Osborne has recently slashed the price target on TSLA to $700 from $790 per share due to reduced delivery guidance as a result of challenges in China.
Cowen now predicts Tesla to deliver 1.28 million cars for the year, compared to the previous forecast of 1.35 million. The analyst expects Tesla to deliver 242,000 electric cars in the second quarter, down from the earlier guidance of 309,400.
Osborne said he believes slower deliveries in China, the carmaker’s most profitable facility, will weigh on its profitability which will be worsened as Tesla attempts to ramp up production of its Model Y in Germany and Texas.
After starting Berlin production last month, Osborne expects Tesla to deliver a few thousand Performance Model Y cars to Germany, Norway, Sweden, and other markets.
Osborne also said that Musk and Tesla could “point to challenges” in their attempts to hit the 50% delivery growth target this year, which would further dent Tesla’s share price. The analyst added that Tesla investors are “growing fatigued” of Musk and his numerous Twitter takes on Environmental, Social, and Governance (ESG), Twitter free speech principles, remote work, and others.
Tesla stock price is trading sharply lower on Friday after media outlets cited Elon Musk’s internal memo to employees about the need to cut costs and slash the total workforce by 10%. Moreover, investors are growing increasingly worried about Elon Musk’s Twitter rants, prompting at least one Wall Street analyst to cut the price target on EV maker.