Musk’s warning could be the “canary in a coal mine” of the automotive industry

Musk’s warning could be the “canary in a coal mine” of the automotive industry

Musk said the electric car manufacturer needed to lay off about 10% of its workforce in an e-mail sent to executives seen by Reuters. He then told employees that the ranks of the white collars had swelled and that he would continue to hire workers to make cars and batteries.

Musk’s warning is the first loud public opposition to the unified automotive industry’s stance that base demand for cars and trucks remains strong despite a two-year global pandemic. This week, one executive described the demand as “very high.”

“Tesla is not your average canary in a coal mine. It’s more like a whale in a lithium mine,” said Morgan Stanley analyst Adam Jonas in a research volume, referring to the metal used in EV batteries.

“If the world’s largest company EV issues warnings about jobs and the economy, investors should reconsider their expectations about margins and growth,” he added. Tesla shares fell 9%.

The automotive sector was hit by a COVID-19 pandemic two years ago, forcing factories to close. This shutdown later played a role in the shortage of semiconductor chips, which further hampered vehicle production.

Supply chain barriers, exacerbated by Russia’s invasion of Ukraine, have dragged sales down. New car sales in the United States in May, according to Wards Intelligence, reached a low annualized 12.68 million. That’s 17 million a year ahead of COVID.

However, these problems mainly affect supply, while inflation is a threat to demand.

“The risk of a recession is high, so what he says is definitely not extreme,” said Jeff Schuster, president of LMC Automotive’s global forecasts, about Musk.

Car sharing companies Uber Technologies Inc. and Lyft Inc. said last month they would cut recruitment and expenses, while online used car dealer Carvana said it would reduce 12% of its workforce.

Other companies are closely monitoring the situation.

“We are not so pessimisticElon Muskbut we are careful about hiring and spending, ”said John Dunn, chief executive of Clean Energy Systems, a unit of Plastic Omnium that manufactures fuel and emission reduction systems.

Industry officials fear a possible recession.

“The automotive industry is rushing to a safe haven of sustained demand that could sustain sales in the coming years as impending economic storm clouds gather and can destroy much of that demand,” said Tyson Jominy, vice president, JD Power. automotive data and analytics.

PROJECT TO ACTION

Josh Sandbulte, chief investment officer of Greenhaven Associates, a money management company that invests heavily in General Motors Co. shares, was in New York this week to attend the Bernstein Alliance conference. He said CEOs in the financial sector there have a much gloomier outlook than other business leaders.

Although Musk’s e-mail sounded much more pessimistic than that of other production executives, Sandbulte said he had learned not to appeal to Tesla’s CEO because he “zigzagged when others did.”

“We are in a period of chaos and frankly, the financial world and the world of corporate executives are at odds,” Sandbulte said. “At some point, we’ll get the answer that’s right.”

Publicly, many other car manufacturers still claim that core demand remains strong. On Thursday, Ford Motor Co. said in reporting its monthly sales in the US that its inventories continued to grow at a record pace.

“Consumer demand is very high right now. Manufacturers do not have stocks,” Allyson Witherspoon, chief marketing officer of Nissan Motor Co. in the United States, told Reuters Automotive Retail Conference in Las Vegas on Wednesday.

Industry officials also point out that Tesla has its own problems, including the ability to hire too quickly in proportion to its growth.

According to the company’s annual reports, employment at Tesla has doubled since the end of 2019, and Jonas of Morgan Stanley pointed out that Tesla’s $ 853,000 per employee revenue is not much higher than that of the much larger Ford, which is $ 757,000.

In addition, Tesla’s U.S. sales are strongly concentrated in California, and especially in the San Francisco Bay Area, which is home to Silicon Valley companies.

High-tech employees with capital wealth are a key customer base for Tesla. Today, however, some large technology companies are shrinking and smaller startups are having trouble getting money.

That may be true, but Muske’s concerns cannot be ignored, said Barry Engle, a former Ford and GM CEO who founded Qell, a transportation investment firm.

“An economic slowdown is increasingly likely,” he said. “Elon and everyone knows that, unlike an entrepreneur, he is naturally more inclined to act and tell the truth, even if it’s unpopular.”


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