Tesla CEO Elon Musk’s “super bad feeling” about the economy could be the auto industry’s “canary in the coal mine” moment, signaling a slowdown for an industry whose owners have shown no signs of worry.
musk said the electric carmaker needs to cut about 10 percent of its workforce in an email to executives seen by Reuters. He later told the employees that the white-collar rank was bloated and that he would hire workers to make cars and batteries.
Musk’s warning is the first vigorous and public discontent in a united stance by the auto industry that the underlying demand for cars and trucks remains strong, despite two years of the global pandemic. This week an executive called the demand “sky high.”
“Tesla isn’t your average canary in a coal mine. It’s like a whale in a lithium mine,” Morgan Stanley analyst Adam Jonas said in a research note referring to the metal used in EV batteries.
“If the world’s largest EV company warns on jobs and the economy, investors should reconsider their forecasts on margins and top-line growth,” he said. Tesla sleepTalk dropped 9 percent.
The auto sector was hit two years ago by the onset of the COVID-19 pandemic, which forced the closure of factories. That shutdown later played a role in semiconductor chip shortages that further affected vehicle production.
Now supply-chain disruptions, exacerbated by Russia’s invasion of Ukraine, have reduced sales. US new car sales in May ended at a weak annual rate of 12.68 million, according to Wards Intelligence. This is a far cry from the glory days of 17 million a year pre-COVID.
However, these issues mostly affect supply, while inflation is a threat to demand.
About Musk, Jeff Schuster, president of global forecasting at LMC Automotive, said, “The risk of a recession is high, so what he’s saying is certainly not extreme.”
ride-hailing companies Uber Technologies And lift Last month it said they would cut hiring and spending, while online used car retailer Carvana said it would cut 12 percent of its workforce.
Other companies are watching closely.
“We are not as pessimistic as Elon Musk, but are cautious about our hiring and spending,” said John Dunn, CEO of America for Clean Energy Systems, a plastics omnimium unit that makes fuel and emissions-reduction systems.
Industry executives are worried about a possible slowdown.
Tyson Jomini, vice president of JD Power, said, “The auto industry is racing toward the safe harbor of pent-up demand, which could propel sales in the years to come, while the looming economic storm is gathering clouds that may be driving that demand.” can destroy it.” Automotive data and analytics.
‘Prone to action’
Josh Sandbulte, chief investment officer of Greenhaven Associates, a money management firm that is a major investor in General Motors Company stock, is attending the Alliance Bernstein conference in New York City this week. He said that financial CEOs have been far more disappointing in their approach than other business leaders.
While Musk’s email sounds far more pessimistic than those of other manufacturing leaders, Sandbulte said he has learned not to dismiss the Tesla CEO because “he has squabbled when other people are zigging and he has been proven right.” “
“We are in a period of disintegration, and clearly the financial world and the business leadership world do not agree,” Sandbulte said. “At some point, we’ll get the answer as to who’s right.”
Publicly, many other automakers still say that underlying demand remains strong. Ford Motor Co., reporting monthly US sales on Thursday, said its inventories continued to hit record rates.
“Consumer demand is very high right now. Manufacturers don’t have inventory,” nissan motor key US marketing chief Alison Witherspoon said Wednesday at the Reuters Automotive Retail conference in Las Vegas.
And industry executives also point out that Tesla has its issues, which probably include hiring much faster than its growth.
Tesla’s employment has doubled since the end of 2019, according to the company’s annual report, and Morgan Stanley’s Jonas said Tesla’s $853,000 in revenue per employee is not much higher than Ford’s $757,000 (about Rs 58,787,600).
In addition, Tesla’s US sales are concentrated in California and specifically in the San Francisco Bay Area which is home to Silicon Valley companies.
High-tech employees along with stock-based money are a significant customer base for Tesla. But now, some big tech companies are laying off staff, and it’s getting harder for smaller startups to get funding.
That may all be true, but Musk’s fears can’t be ignored, said Barry Angle, a former Ford and GM executive who founded QL, an investment firm focused on transportation.
“The prospect of an economic downturn is increasing,” he said. “Elon and everyone else know it. The difference is that as an entrepreneur he is naturally more prone to action and voice the truth, even if unpopular.”
© Thomson Reuters 2022