Tesla’s Layoffs Won’t Solve Its Growing Pains

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.