Elon Musk took out his firefighter costume.
Tesla (TSLA) – Get Tesla Inc Report CEO tries to put out the fire he himself started about the manufacturer of high-end electric vehicles.
The billionaire entrepreneur sent an email on June 3 to Tesla employees in which he told them about cost-cutting measures in the face of the economic slowdown and fears of recession.
In the memo, seen by Reuters, the chief executive officer announced that the vehicle manufacturer planned to reduce its salaried staff by 10%. The job cuts won’t apply to employees who build cars or battery packs.
As of December 31, 2021, our full-time count for our and our subsidiaries’ employees worldwide was 99,290, according to the company’s annual report.
Musk also told employees, in the same memo, that he has a “super bad feeling” about the economy and wishes to “pause all hiring.”
The shares of the company fell sharply by 9.22% to $703.55 during the last trading session.
The warning comes amid what is likely to be a grim quarter for Tesla, which has seen its Shanghai factory close for 22 days, with slowing output on its re-opening, thanks to the city’s strict covid lockdown.
Tesla produced just 10,757 cars in the world’s biggest market in May, selling just over 1,500 and exporting none, according to data from the China Passenger Car Association (CPAC).
‘Total Headcount Will Increase’
Tesla’s market valuation has shrunk by nearly $370 billion since January. In addition to Musk’s adventures in acquiring micro-blogging site Twitter for $44 billion, investors are also concerned that ongoing supply chain issues, chip shortages, soaring raw material prices and now the economic slowdown may delay Tesla’s ambitions.
Speaking of cutting jobs, Musk only heightened those fears.
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Aware, no doubt, of the danger, the tech tycoon has just kind of backtracked. He now claims that Tesla’s workforce will increase.
“Total headcount will increase, but salaried should be fairly flat,” Musk posted on Twitter on June 4, without additional details.
The post was a response to a Twitter follower saying that Tesla’s headcount would increase over the next 12 months.
Recession ‘Not Necessarily a Bad Thing’
In recent weeks, Musk has repeatedly said that a recession isn’t all bad.
“I think we probably are in a recession and that recession will get worse,” the billionaire said on May 16 during a virtual appearance at the recent All-In Conference held in Miami. “But you know, these things pass and then there will be boom times again.”
Tesla CEO added that the recession will “probably” last 12 to 18 months.
Musk recommends that companies watch their costs as well as cash flows.
“Recessions are not necessarily a bad thing. I’ve now been through a few of them. And what tends to happen is if you have a boom that goes on for too long, you get misallocation of capital. It starts raining money on fools. Basically, it’s like any damn thing gets money and I’m sure you’ve seen a few of those,” Musk said.
“So somebody gets just out of control. And you just have a misallocation of human capital where people are doing things that are silly and not useful to their fellow human beings,” he continued. “Watch your cash flow and get positive cash flow as soon as you can.”
The mogul added that one of the things about recessions is that they sort out good companies from bad ones.
“The bullshit companies go bankrupt and the ones that are doing useful products are prosperous.”
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