[lumost]

Does anyone know why Tesla is laying off so agressively? While they are likely overvalued post-pandemic... their financial position appears solid even if the stock fell by 50x.

I doubt any cuts could yield the type of profitability that wall street expects at the current valuation.

[pengaru]

Five days ago Tesla's CEO was quoted as recently stating:

"Both Berlin and Austin factories are gigantic money furnaces right now. OK? It should be like a giant roaring sound which is the sound of money on fire," Musk said in the interview with Tesla Owners Silicon Valley, which was recorded on May 30 and published Wednesday.

"Berlin and Austin are losing billions of dollars right now because there's a ton of expense and hardly any output. Getting Berlin and Austin functional and getting Shanghai back in the saddle fully are overwhelmingly our concerns. Everything else is a very small thing basically."

Musk said the Texas factory is "losing insane money" at the moment because of troubles ramping up production of cars with the so-called 4680 battery, Tesla's latest technology. Meanwhile, the tools to make cars for the traditional 2170 batteries are "stuck in a port in China."

Since the interview, Musk has announced plans to reduce Tesla's salaried workforce by 10% in the next three months. But the company plans to increase the number of hourly employees. Tesla's layoffs would affect around 3.5% of its overall workforce, Musk said this week.

Source: https://www.cnbc.com/2022/06/23/musk-says-tesla-berlin-and-a...

[vannevar]

These are not the kind of cuts you make because you have a bad feeling. These are the kinds of cuts you make because you're seeing orders fall off a cliff. I suspect that in particular Tesla is seeing erosion in their Cybertruck pre-orders given that Ford and Rivian have beaten them to market and both those products are drawing rave reviews.

[saurik]

FWIW, I get the impression that their primary problem right now is production capacity / supply, not pre-orders / demand: they are pretty constantly increasing the price, are moving the delivery date of existing orders forward, have occasionally hinted they might should simply stop taking orders at all as they are so far behind, and supposedly have tons of cars sitting around at Tesla locations waiting for one or two more parts to come in before they can be handed to customers.

[DoesntMatter22]

That doesn't even make any sense. Tesla doesn't even sell any CyberTrucks right now, so even if they lost all their pre orders it wouldn't affect revenue now. Ford and Rivian aren't even making vehicles in any sort of volume to be even a minor rival.

And why do you think that orders are falling off of a cliff exactly?

Tesla has grown incredibly fast, they have 100k employees, they have a terrific balance sheet and are at no risk of bankruptcy.

For the last 10 years people seem to always lay out this awful scenario for Tesla, meanwhile they are growing in sales incredibly quickly, literally the quickest ever.

[vannevar]

Tesla has grown incredibly fast, they have 100k employees, they have a terrific balance sheet and are at no risk of bankruptcy.

Tesla has grown incredibly quick, all while essentially having the electric car market to themselves. That is no longer true---their market share will inevitably shrink, because it has nowhere to go but down. If the overall market growth slows---say, because of inflation and a recession---then this could be a problem for a company that has been staffing for breakneck growth and now sees that growth flattening. I'm not saying Tesla is going bankrupt, but I do believe that having two major competitors beat it to market in a strategic segment like trucks is a problem for Tesla, they are seeing that problem play out in projected sales, and they are trimming the payroll to rightsize for more challenging conditions.

[parkingrift]

There is a 6-9 month waiting period to receive a Model Y. More likely is that Musk is desperately focusing on factory output because demand is overwhelming supply.

[panick21_]

> because you're seeing orders fall off a cliff

Any evidence or are you just making up things? Because that is literally the opposite of pretty much everything we know about Tesla orders.

> Cybertruck pre-orders given that Ford and Rivian have beaten them to market and both those products are drawing rave reviews.

That makes no sense. Cybertruck pre-orders going away (if that is case, and I question that) would not impact its current financials.

[vannevar]

I am absolutely speculating. But companies don't just act on current financials, they act on future projections. If they see lean times ahead, they may very well cut current expenses in order to conserve cash they believe they will need in the months ahead. I don't think the current cuts are routine, or because Musk as a "bad feeling", I think they're seeing something concrete that is adversely affecting future revenue projections. A downturn in the auto market generally, and a downturn in Cybertruck demand particularly, as reflected in advance orders would certainly fit the bill.

[MomoXenosaga]

This is Musk. It totally could be he's making these cuts because he has a bad feeling. This isn't Volkswagen were everything is decided by committee.

[vagrantJin]

I don't think you fully appreciate how massive volkswagen is, as an organization.

There is literally no place for whims and feelings at a company that big.

[Melting_Harps]

> I don't think you fully appreciate how massive volkswagen is, as an organization. There is literally no place for whims and feelings at a company that big.

I do, I worked for VAG during Dieselgate and got a first hand look at the sheer monstrosity of a Megacorp that it is when dealing with the processes, and actually it has a long history of doing just that. In fact the way they got the engineers on board for the cheat device wasn't through a committee or board, it was upper management intimidating engineers to comply by way of threatening their continued employment there.

Furthermore, they could have gotten away with it after the first alarms were sounding off that they were being investigated, but they decided to keep doing it anyway.

It's really eye opening after having gone through the chaos of it all it first hand working within the TDi buy back program and dealing with Bosch and VW corporate in the early phases of the program, while doing a customer facing role and then reading Jack Ewig's book [0] now.

As for Tesla lay offs, they do this when they expand their lineup, it's like a calibration thing at this point.

Right after Tesla model 3 roll out which failed to meet its targets in '17 [1] which incidentally was days after my first round of interviews at Fremont they started to lay people off. These layoffs extended to 2018 ultimately led to shedding off 9% of total workforce by 2018 [2] when M3 ramp up was the only thing that could stop the never ending hemorrhaging that was likely to bankrupt Tesla if they didn't. I know this because that was the time that they asked me if I was still interested in the role and if I'd want to re-apply and take another round of interviews. I declined and told them I'd made efforts since then to make my way to SpaceX instead, the recruiter understood and kindly wished me well.

0: https://www.amazon.com/Faster-Higher-Farther-Volkswagen-Scan...

1: https://www.cnbc.com/2017/10/17/tesla-firings-former-and-cur...

2: https://text.npr.org/619426602

[thfuran]

>There is literally no place for whims and feelings at a company that big

Tesla surely meets that threshold as well.

[UkrainianJew]

Tesla P/E is at 94, Ford is at 4, so they are overvalued by quite a lot.

The interest rates will likely reach 3% by the end of the year, and may need to go all the way to 8% to have a meaningful effect on the inflation.

Every measurable economic metric suggests we are rolling full speed into a recession. And driving your old car for another year or two instead of upgrading to that nice luxury EV is one of the first things many people would do.

So, their sales will likely plummet. Taking on more debt will become quite expensive, and the share prices will very likely correct by a lot. They are doing everything well, if you ask me.

[geoduck14]

If inflation is going up, like you suggest, now is the time to buy the stuff that you want - before the price goes up

[331c8c71]

For many recession means a higher risk of being laid off.

[cableshaft]

The Fed can't easily raise rates all the way up to 8%. The higher rates affect the government just as much as you buying a new home or taking out a loan, and the government has a shitload of debt it has to keep refinancing.

"But with help from the Treasury and from Social Security’s actuaries, I’ve come up with a reasonable estimate of that added interest cost. By my math, the Fed’s higher rates will increase the federal government’s interest costs by about $128 billion a year."

That may not sound like much, given the trillions of dollars of investment wealth that have been vaporized by the Fed’s higher rates. Or given the $1.4 trillion deficit President Biden’s proposed budget projects for this year.

But $128 billion is in the vicinity of the $133 billion total that the Biden budget is seeking for the Energy, Homeland Security and Agriculture Departments.

Or is just $2 billion below the total that the Biden budget proposes to spend for the Interior Department, the Labor Department, the Commerce Department, the Treasury, the Environmental Protection Agency, the National Aeronautics and Space Administration, the National Science Foundation, the Social Security Administration and the Corps of Engineers. Combined."[1]

"Already, the federal government spends $330 billion per year, or $2,207 per taxpayer, on interest payments – more than on food stamps and disability insurance combined. And two-thirds of our debt is slated to roll over in the next five years, likely into higher interest rate bonds.

For every 1 percentage point increase in interest rates above projections, deficits grow by $2 trillion over a decade; that’s on top of the nearly $13 trillion in projected borrowing over the next decade."[2]

[1]: https://www.washingtonpost.com/business/2022/06/27/fed-rate-...

[2]: https://www.crfb.org/press-releases/feds-interest-rate-hike-...

[dannyw]

The numbers you use to benchmark are arbitrary.

The annual budget is about $6 trillion.

They certainly can eat another $128B or even $500B.

After all, when inflation is higher than interest rates, the real yield is negative.

[naveen99]

The fed can do qe just as easily at 8% interest rates. They just feed the interest right back to the treasury.

[331c8c71]

Well, the Fed has a clearly stated statutory mandate of "promoting maximum employment, stable prices, and moderate longterm interest rates".

Whether pursuing this mandate inconveniences the govt or not should not be a concern (at least in theory).

[DoesntMatter22]

Comparing Tesla to Ford is just comical. Tesla has a completely different technology they work on, and has a massive lead on Ford in EV's.

You don't even know what you are saying about Tesla. Take on more debt? Why would they do that? They have 17 billion dollars in cash on hand, and paid off a lot of their pre existing debt.

Even if they want to build a new gigafactory they don't need any more funding. They smartly sold more shares when the stock was insanely high and got a huge infusion.

[blitzar]

> They have 17 billion dollars in cash on hand, and paid off a lot of their pre existing debt.

Tesla total liabilities for the quarter ending March 31, 2022 were $31.091B, a 6.81% increase year-over-year.

So they may have paid off a lot of their pre existing debt and then went and borrowed even more money on different terms.

[hotpotamus]

I don't really see why the comparison is comical. I need a box with wheels to get me from place to place like many Americans. Right now I've got a manual 2016 Chevy Cruze because I got a really good deal on it. I like the idea of my next car being electric so I'd probably be cross shopping a Bolt with a Model 3, but that idea made a lot more sense when the 3 was supposed to be $30K. Now the Bolt is going to be something like $27K and the 3 is what - close to $60K? I'm sure the model 3 is faster, but I drive in traffic so I don't get to go fast anyway. If Ford makes an electric Fiesta for a reasonable price I'll throw that in the mix. I'll gladly look at the Asian makers too if they come up with something - the Ioniq looks nice by all accounts.

[DoesntMatter22]

Sure, but will Ford make money off of it? That's to be seen. Tesla is the Apple of car makers and they've grown aggressively. Ford is only going to be replacing existing cars with new electric cars, which are probably not going to be very profitable in the short term.

Meanwhile, Tesla is very profitable over the last few years and is very profitable on a per car basis. Not to mention the other tech that they are working on.

P/E is always going to be relative to growth. tons of companies have infinite P/E and are hemorrhaging money. Tesla is not.

[hotpotamus]

Well if I buy a Ford and not a Tesla, then Ford will presumably make some money from me and Tesla won't make any. I'll give it to Tesla (and Musk really) that they really mainstreamed the electric car by making it a luxury/halo type product, but it looks to me like they're losing a lot of their first-mover advantages now and they'll probably be losing some margin. Also their CEO went kinda nuts which didn't help the brand so much, but it seems like someone got him off twitter, so that might help too.

Hopefully Tesla can stay competitive and keep pushing the tech forward, but I think they've got some tough times ahead.

[panick21_]

> then Ford will presumably make some money from me

That's not at all certain when buying and EV.

> but it looks to me like they're losing a lot of their first-mover advantages now

That's what people have been saying since 2014 and Tesla has just continued to grow.

> and they'll probably be losing some margin

Given that they have improved prices quite a bit and still have lots of order backlog, I would suspect the opposite.

Maybe total operational margin will be down because of Berlin and Texas factories, but automotive margin is unlikely to go down.

[DoesntMatter22]

You are a on the low end of buyers, and there are a lot of them. But it's also not the most profitable segment. Tesla has been selling cars as fast as they can build them, until that changes I'm not going to fear another competitor.

Part of the reason Ford and others can even compete is that Tesla open sourced their patents. Ford and other's electric cars are being built on the house that Tesla built.

[anarticle]

So far, many of the box on wheels from other manufacturers have had recalls for blowing up people's houses.

Hyundai is the lucky one so far.

[MattRix]

These are not cuts because they are struggling, they are cuts for efficiency. From what I understand they will be hiring enough people over the next few months to make up for their recent cuts.

[ivraatiems]

It's because Elon Musk has a "super bad feeling": https://www.wpr.org/elon-musk-has-super-bad-feeling-about-ec...

That's the reason.