Layoffs at Tesla: What Does It Mean? – Info Decision Make

Yesterday, Elon Musk announced substantial layoffs at Tesla (9% of its workforce).  Successful, high-growth companies typically do not let go of that many employees.   What’s wrong at Tesla?  Clearly, the company has struggled with production of the Model 3.   Many analysts have said that Tesla will need to raise significant amounts of capital in the near future.  Musk has denied that such a move is necesssary.  His recent announcement regarding the scaling back of capital expenditure spending plans, and now the layoffs, suggest an ambitious effort to conserve cash.   Tesla’s challenge is not the lack of profitability (it has not been profitable for 15 years).  Instead, it’s problem is cash.  Many investors clearly have not been worried too much about the lack of profitability.  However, they would become very concerned if the company started running out of cash and then faced challenges raising new capital at attractive terms. 

Eaves’ point is that investors have ignored the lack of profitability for years.   They have expressed profound belief in the growth story, and they have been willing to fund huge capital expenditures in pursuit of that growth.  If investors suddenly started valuing the company differently, then the stock price would face significant pressure.