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Tesla layoffs won’t solve its growing problems

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Tesla layoffs won't solve its growing problems

This week has been one of Tesla’s worst. The company has cut 10 percent of its workforce, from sales consultants to engineers, the largest round of layoffs in the company’s history. Two senior executives: vice president of public policy and business development, Rohan Patel; and senior vice president of powertrain and energy, Drew Baglino—He also announced that they were leaving. This comes against a difficult financial backdrop: demand for electric cars is falling in the United States and Europe, just as competition in China intensifies and workers revolt in Europe. Investors are worried: Over the past six months, Tesla shares have fallen 35 percent.

For many employees, the layoffs came as a surprise. On Friday, Angela’s boss told him how well she was doing at her job, selling Teslas directly to customers in the US state of Georgia. Three days later, her role had been eliminated, effective immediately. “She expected more from Tesla, at least to notify people a week or two in advance,” says Angela, who asked to use a pseudonym in case she has the opportunity to work for Tesla again. Angela says 40 percent of her team was fired and in shock. Around 14,000 people received the same email, blaming rapid growth on job duplication. “We have conducted a thorough review of the organization and made the difficult decision to reduce our global workforce,” the email said.

Tesla is facing unprecedented challenges around the world, ranging from slowing demand to increased 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 growth rate this year, blaming rising interest rates for slowing demand. In the last three months of 2023, Tesla lost its crown as the world’s best-selling electric vehicle maker, as Chinese car company BYD sold 40,000 more cars globally than its American rival.

“[Tesla’s] The main goal – having electric vehicles available to everyone – will actually be achieved by other companies,” says Liana Cipcigan, professor of transport electrification at Cardiff University in Wales. BYD has already met Tesla’s goal of launching a lower-cost electric vehicle of $25,000. That has caused an identity crisis at a company that was once at the forefront of the industry. If its role is no longer to popularize cheap electric vehicles, what is it then?

Tesla’s global fortunes are intertwined with China, now the source of its main competition. It took the company just 168 days to build its factory in Shanghai in 2019. Musk hoped to corner what is now the world’s largest electric vehicle market. But the Tesla site also had “a catfish effect,” says Lei Xing, an analyst and former editor at the 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, electric vehicle sales in China have leap 500 percent.

“In China, it’s not Tesla’s game anymore,” says Xing. This is particularly important as the demand for electric vehicles in the US and Europe it slows down. A famous clip from a 2011 Bloomberg interview illustrates how far the Chinese electric vehicle industry has come. Back then, Musk had mocked BYD’s efforts. “Have you seen his car?” he had said, laughing.

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