Elon Musk, the CEO of Tesla, has a “very awful feeling” about the economy, which might be the “canary in the coal mine” moment for the auto industry, predicting a recession for an industry whose executives have shown no symptoms of concern.
In a communication to executives seen by Reuters, Musk said the electric carmaker needs to eliminate approximately 10% of its personnel. He later warned employees that the white-collar positions were bloated and that he would continue to hire people to produce vehicles and batteries.
Despite two years of a global pandemic, Musk’s warning is the first loud and vocal disagreement in the auto industry’s unanimous stance that the underlying demand for cars and trucks stays strong. The demand, according to one CEO this week, is “sky high.”
“Tesla’s not your average canary in the coal mine. It’s more like a whale in the lithium mine,” In a research note, Morgan Stanley analyst Adam Jonas mentioned 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 added. Tesla stock fell 9%.
The advent of the COVID-19 epidemic devastated the auto industry two years ago, forcing the shutdown of factories.
The stoppage contributed to a semiconductor chip shortage, which slowed vehicle production even more.
Supply-chain snarls have now driven down sales, worsened by Russia’s invasion of Ukraine. According to Wards Intelligence, new-car sales in the United States fell to a low annualized pace of 12.68 million in May. That’s a far cry from the 17 million a year pre-COVID heyday.
However, those difficulties mostly influence supply, whereas inflation poses a risk to demand.
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