The analyst says Tesla's layoffs are an “ominous sign” for the company

Tesla ( TSLA ) announced a major headcount cut in the wake of a disappointing first-quarter delivery report, following in the footsteps of legacy automakers and electric vehicle makers, according to an internal memo.

As I mentioned for the first time before EV Electric BlogCEO Elon Musk sent an email to employees confirming a headcount reduction of “more than 10%.” Previous reports Layoffs could reach up to 20% of employees.

“As we prepare the company for the next phase of growth, it is critically important that we look at every aspect of the company to reduce costs and increase productivity,” Musk wrote in the memo. “As part of this effort, we conducted a comprehensive review of the organization and made the difficult decision to reduce our headcount by more than 10% globally. There is nothing I hate more, but it has to be done.

With the number of Tesla employees reaching about 140,000 workers globally, the reduction is likely to affect at least 14,000 workers. Tesla stock fell in early trading after reports of Musk's layoff memo.

For Tesla, the layoffs come after a disappointing first-quarter delivery report that showed the company widely missed consensus estimates and oversupplyed more than 46,000 vehicles. This means Tesla is feeling the impact of slowing demand for electric vehicles, both in the US and globally, after reporting its first quarterly decline in deliveries since 2020.

Tesla chief Dan Ives of Wedbush Securities warned that the layoffs were a negative sign for Tesla, as seen in Monday's move to the downside. Ives has a $300 price target and a buy rating on the stock.

“This is an ominous sign that points to the tough times ahead for Tesla as Musk weathers this Category 5 storm,” Ives said in a comment to Yahoo Finance. “Demand has been weak globally, and this is an unfortunately necessary move for Tesla to cut costs with a softer growth outlook.”

Musk has complained in the past that high rates and high overall prices are a barrier to electric vehicle adoption, and said low prices are key to driving growth. Investors and analysts believe part of Tesla's big growth story will be its long-rumored next-generation car that will start at around $25,000; However, reports last week indicated that Tesla had canceled the car. Musk responded to the report claiming it is false and revealing that the Tesla robotaxi's debut will be on August 8.

Tesla is expected to report earnings on Tuesday, April 23, and will likely provide further commentary on the layoffs, their impact on its financials, and near-term demand for the company.

Not everyone in the Wall Street community sees today's layoff announcement as necessarily a bad thing.

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“The layoffs would be consistent with actions taken by other automakers — particularly pure electric vehicles like Rivian and Lucid — amid slowing EV growth rates,” CFRA analyst Garrett Nelson told Yahoo Finance. “We view this announcement as a sign of the times, but the fact that Tesla is taking cost-cutting measures amid the slowdown should be positive for the bottom line.”

Pras Subramanian is a reporter for Yahoo Finance. You can follow it Twitter and on Instagram.

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