Tesla CEO Elon Musk’s “super bad feeling” about the economy could be the auto industry’s “canary in the coal mine” moment, signaling a recession for an industry whose bosses have shown no signs of concern.
Musk said the electric carmaker needed to cut about 10% of its workforce in an email to executives seen by Reuters. He later told staff that white-collar ranks were bloated and he would keep hiring workers to make cars and batteries.
Musk’s warning is the first loud and public dissent in a united stance by the auto industry that underlying demand for cars and trucks remains strong despite two years of global pandemic. One executive this week called demand “sky high.”
“Tesla’s not your average canary in the coal mine. It’s more like a whale in the lithium mine,” Morgan Stanley analyst Adam Jonas said in a research note, referring to the metal used in EV batteries.
“If the world’s largest EV company warns on jobs and the economy, investors should reconsider their forecasts on margins and top-line growth,” he added. Tesla stock fell 9%.
The auto sector was hit two years ago by the onset of the COVID-19 pandemic, which forced the closure of factories. That shutdown subsequently played a role in the semiconductor chip shortage that further hobbled vehicle production.
Now supply-chain snarls, exacerbated by Russia’s invasion of Ukraine, have dragged down sales. US new-car sales in May finished at a weak annualized rate of 12.68 million, according to Wards Intelligence. That’s a far cry from the glory days of 17 million a year pre-COVID.
Those issues mostly affect supply, however, while inflation is a threat to demand.
“Risk of recession is high, so what he is saying certainly isn’t extreme,” Jeff Schuster, president of global forecasting at LMC Automotive, said of Musk.
Ride-hailing companies Uber Technologies Inc and Lyft Inc said last month they would scale back hiring and curtail spending, while online used-car retailer Carvana said it would cut 12% of its workforce.
Other companies are watching closely.
“We are not as pessimistic as Elon Musk, but are being cautious about our hiring and expenditures,” said John Dunn, Americas CEO for Clean Energy Systems, a Plastic Omnium unit that makes fuel and emissions-reduction systems.
Industry officials worry about a possible recession.
“The auto industry is racing to the safe harbor of pent-up demand that could carry sales for years to come, while the looming economic storm clouds are gathering that could destroy much of that demand,” said Tyson Jominy, J.D. Power vice president of automotive data & analytics.