Tesla’s Layoffs Won’t Solve Its Growing Pains

Tesla’s Layoffs Won’t Solve Its Growing Pains

CEO of Tesla Elon Musk

The car company popularized EVs. Now, facing intense competition from China, it has to figure out what to do next.

This week has been one of Tesla’s worst. The company has cut 10 percent of its workforce, from sales advisers to engineers—the biggest round of layoffs in the company’s history. Two top executives—vice president of public policy and business development, Rohan Patel; and senior vice president of powertrain and energy, Drew Baglino—also announced they were leaving. This comes against a difficult financial backdrop: Demand is dropping for electric cars in the US and Europe, just as competition in China intensifies and workers revolt in Europe. Investors are worried: In the past six months, Tesla’s stock has dropped 35 percent.



For many employees, the layoffs were a surprise. On Friday, Angela’s boss told her how great she was doing at her job, selling Teslas direct to customers in the US state of Georgia. Three days later, her role had been eliminated, effective immediately. “I expected more from Tesla, to at least give people a week or two’s heads-up,” says Angela, who requested to use a pseudonym in case she gets the chance to work for Tesla again. Angela says 40 percent of her team was laid off, and in shock. Around 14,000 people received that same email, which blamed rapid growth for the duplication of job roles. “We have done a thorough review of the organization and made the difficult decision to reduce our headcount globally,” the email said.

Tesla is facing unprecedented challenges around the world, ranging from slowing demand, to increasing competition from its Chinese competitors, ongoing worker strikes in Sweden, and even sabotage by German climate activists. Earlier this month, the company warned investors to expect a lower rate of growth this year, blaming interest rate hikes for dampening demand. In the last three months of 2023, Tesla lost its crown as the manufacturer of the world’s best-selling electric vehicles, as Chinese car company BYD sold 40,000 more cars globally than its US rival.

“[Tesla’s] main aim—to have electric vehicles achievable for everybody—will actually be achieved by other companies,” says Liana Cipcigan, a professor of transport electrification at Cardiff University in Wales. Tesla’s goal to release a lower-cost $25,000 EV has already been reached—by BYD. That has sparked an identity crisis at a company that was once at the vanguard of the industry. If its role is no longer to popularize cheap EVs, then what is?

Tesla’s global fortunes are interwoven with China—now the source of its main competition. It took the company just 168 days to build its Shanghai factory back in 2019. Musk had been hoping to corner what is now the world’s largest EV market. But the Tesla site also had “a catfish effect,” says Lei Xing, an analyst and former editor of Beijing-based media outlet China Auto Review. In business, the “catfish effect” refers to introducing a big fish—a competitive company—into the tank to force smaller, weaker fish to up their game. If that was China’s intention, it worked. In the five years since Tesla arrived in Shanghai, China’s EV sales have jumped 500 percent.



“In China, it’s not Tesla’s game anymore,” says Xing. That’s particularly important as EV demand in the US and Europe slows. A famous 2011 Bloomberg interview clip illustrates how far the Chinese EV industry has come. Back then, Musk had mocked BYD’s efforts. “Have you seen their car?” he had said, sniggering.

“That was many years ago,” he said in May, when the video resurfaced. “Their cars are highly competitive these days.” Now Tesla looks stale by comparison to its Chinese competitors, says Xing. He points out how the Denza N7, a joint venture between BYD and Mercedes-Benz, was launched in July. Nine months later, the brand released an updated model with new features, at a cheaper price. “Normally in the industry, a refresh will come every two to three years,” says Xing. “Tesla has not had a new model since 2022.”

That’s partly because Tesla is led by Elon Musk, a man better known for pulling off moonshots. Musk joined Tesla to shift the world to a more sustainable mode of transport, not to fight for market share at a regular car company. But many employees at Tesla were attracted to the company precisely because of its grand mission: “To accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.” Tesla helped create the EV market that exists today. But a Reuters story earlier this month suggests Tesla has scrapped its own low-cost car plan in the face of steep low-cost competition. (“Reuters is lying (again),” Musk said on X in response). Earlier this month, Tesla’s cofounder Martin Eberhard also lamented the change of direction. “Tesla delaying or eliminating their low-end Model 2 program … is a shame for them, but it’s a sign that China has a chance to really spread there,” he said.

Instead, Musk is gravitating to other problems—shifting Tesla’s focus to autonomous driving and robotaxis. This shift, initially outlined in his 2016 “Master Plan, Part Deux,” will help galvanize Tesla’s image as the “innovative EV company,” says Helena Wisbert, director of the CAR Center for Automotive Research in Germany. “But there are a lot of critical voices saying that Tesla’s promises don’t fit with reality, especially in the autonomous driving field.” Musk told investors in 2019 that more than a million Teslas would be on the road with “full self-driving hardware” within a year. But today, that is yet to happen, and Tesla’s Full Self-Driving (FSD) model still requires driver supervision. In December, the company recalled almost 2 million vehicles in the US to fix an autopilot fault.

Shareholders will get a chance to give their blessing at a vote in June, when they will be asked to ratify Musk’s $50 billion pay package and approve the company’s move to Texas. The vote will effectively be a referendum on Musk’s leadership and Tesla’s new autonomous identity. The company has transformed the EV industry. Now it needs to work out what to do next, and, crucially, how it can possibly keep pace with China.

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