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Tesla appears to have abandoned its go-to strategy to juice demand by instituting margin-destroying price cuts and, instead, now seems bent on pairing cost-cutting measures with those that enhance its ancillary revenue streams.
$TSLA CEO @elonmusk: "..we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally. There is nothing I hate more, but it must be done. This will enable us to be lean, innovative & hungry for the next growth… pic.twitter.com/IkWPEb8c5b
— The Transcript (@TheTranscript_) April 15, 2024
To wit, Electrek reported on Sunday that Tesla is now slashing its global headcount by over 10 percent this week. Based on a global workforce count of around 140,000 in 2023, Tesla's latest layoffs amount to around 15,000 employees.
I made the difficult decision to move on from Tesla after 18 years yesterday. I am so thankful to have worked with and learned from the countless incredibly talented people at Tesla over the years.
I loved tackling nearly 🤣 every problem we solved as a team and feel gratified…
— Drew Baglino (@baglino) April 15, 2024
Concurrently, it appears that at least two executives have chosen to part with Tesla in light of these layoffs, including the EV giant's SVP of Powertrain and Energy, Drew Baglino.
The Impact of Tesla’s Layoffs and FSD Rate Increase
$TSLA - In 2023 the company had 140K employees. In 2022 the Median Non-CEO compensation was $34K (2022 Proxy). Assuming an 11% cut (>10%) ~$500mn saving or $400mn post tax or $0.11 on $2.80 2024E EPS = 4% = immaterial, and EPS probably still drops <$2.
— LostFundamentals (@LostFundamental) April 15, 2024
Tesla's median non-CEO salary in 2023 amounted to around $34,000. Assuming 15,000 employees are laid off, Tesla can reasonably eke out annual savings of around $500 million, corresponding to an impact of $0.11 on the EV giant's expected 2024 EPS of $2.80.
While some bulls are excited by $TSLA ‘s decision Friday after market close to cut the FSD subscription price from $199/month to $99/month, most investors we talk to expected such a reduction as the 30-day free trial period for 1.7M Tesla owners nears completion at the end of… https://t.co/pGR39S3RL7
— Gary Black (@garyblack00) April 15, 2024
Yet, there is more. Elon Musk is also mulling decreasing Tesla's FSD monthly subscription price to increase its uptake rate. This measure, should it win approval, is expected to contribute positively to Tesla's under-pressure margins.
Challenges Abound
Despite the incrementally positive nature of these developments, Tesla's challenges remain substantial.
$TSLA shares fell 0.5% to $170.20 in premarket trading; Tesla's goal is to produce 250K Cybertrucks a year, or about 62,500 a quarter; Tesla shares have fallen 31% this year. https://t.co/vWF6im3fMz
— notreload (@thudderwicks) April 15, 2024
The company has halted Cybertruck deliveries for a week to tackle an accelerator pedal issue. Tesla eventually aims to produce 250,000 units of the Cybertruck annually.
#Tesla's sales are slumping and it will be cutting headcount, but it is enjoying significant growth in global inventory which is subject to infinite demand, in effect!https://t.co/f6YcY1sRMS pic.twitter.com/VCnqVnQnAe
— Adam Warden 🌐 (@Adam_and_EVs) April 15, 2024
Moreover, Tesla's inventory count keeps increasing amid persistent demand-related headwinds. We recently estimated that for Q1 2024, the company's Days of FG Inventory (also known as the Days of Supply metric) has increased to 27.82, based on an overall inventory level of 143,462 units and an average daily delivery rate of 5,157.47.
Musk in under big pressure for the next Earnings call which usually don't end up that well given recent stock reaction. This time, there are multiple relevant topics:
1. VPs leaving
2. Competition in China. YoY decline.
3. Model 2 delay in favour of Robotaxi
4. Inventories…— Afonso (@AfonsoEV_) April 15, 2024
Finally, investors remain attuned to the drama surrounding Tesla's Model 2 and the robotaxi. As a refresher, Reuters published a highly contentious report in early April, noting the EV giant's apparent willingness to abandon its upcoming cheaper Model 2 in the face of serious competition from China. While Elon Musk quickly clamped down on the veracity of Reuters' reporting, this has not stopped educated conjecture as to the fate of the $30,000 Model 2. The same day, in an apparent attempt to halt Tesla's share price slide, Musk announced that the EV giant's much-delayed robotaxi will be unveiled on the 08th of August, 2024, with the vehicle expected to leverage the same platform as that of the Model 2. Yet, there appears to be a growing chorus on Wall Street that the robotaxi is a 2030 story that lacks any immediate financial implications.
Tesla shares are down around 3 percent at the time of writing. Year to date, the stock is now down 33 percent.
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