Elon Musk told Tesla employees that he has a “super bad feeling” about the state of the US economy — so much so that he will need to lay off around 10% of the electric car maker’s workforce, according to a report.
Musk’s gloomy outlook echoes recent comments from executives including JPMorgan Chase CEO Jamie Dimon and Goldman Sachs President John Waldron.
A “hurricane is right out there down the road coming our way,” Dimon said this week.
In an email message to employees that was first reported by Reuters, Musk announced that Tesla would “pause all hiring worldwide.”
The ominous email came two days after the billionaire told staff to return to the workplace or leave, and adds to a growing chorus of warnings from business leaders about the risks of recession.
Last week, Musk tweeted that he believes it would be beneficial for the US economy to go into a recession and that “some bankruptcies need to happen.”
Tesla’s billionaire boss said that the domestic economy is in for a “rude awakening.” He also said that working from home has made Americans lazy.
When asked by a Twitter user if he thought there would be a recession, Musk replied: “Yes, but this is actually a good thing. It has been raining money on fools for too long.”
He then added: “Some bankruptcies need to happen. Also, all the Covid stay-at-home stuff has tricked people into thinking that you don’t actually need to work hard.”
“Rude awakening inbound!”
Musk was then asked how long he thought the recession would last.
“Based on past experience, about 12 to 18 months,” the tech mogul replied.
“Companies that are inherently negative cash flow (ie value destroyers) need to die, so that they stop consuming resources.”
Tesla employed almost 100,000 people at the company and its subsidiaries at the end of 2021, according to its annual SEC filing.
The company was not immediately available for comment.
Tesla shares fell nearly 3% in U.S. premarket trade on Friday and its Frankfurt-listed stock was down 3.6% after the Reuters report. U.S. Nasdaq futures turned negative and were trading 0.6% lower.
Musk has warned in recent weeks about the risk of a recession, but his email ordering a hiring freeze and staff cuts was the most direct and high-profile message of its kind from the head of an automaker.
So far, demand for Tesla cars and other electric vehicles has remained strong and many of the traditional indicators of a downturn – including increasing dealer inventories and incentives in the United States – have not materialized.
But Tesla has struggled to restart production at its Shanghai factory after Covid-19 lockdowns forced costly outages at the plant.
“Musk’s bad feeling is shared by many people,” said Carsten Brzeski, global head of macroeconomic research at Dutch bank ING.
“But we are not talking about global recession. We expect a cooling of the global economy towards the end of the year. The US will cool off, while China and Europe are not going to rebound.”
Inflation in the United States is hovering at 40-year highs and has caused a jump in the cost of living for Americans, while the Federal Reserve faces the difficult task of dampening demand enough to curb inflation while not causing a recession.
Musk, the world’s richest man according to Forbes, did not elaborate on the reasons for his “super bad feeling” about the economic outlook in the brief email seen by Reuters.
A number of analysts have cut price targets for Tesla recently, forecasting slower deliveries due to Chinese lockdowns and lost output at its Shanghai plant, a hub supplying electric vehicles to China and for export.
China accounted for just over a third of Tesla’s global deliveries in 2021, according to company disclosures and data released on sales there.
Wedbush Securities analyst Daniel Ives said in a tweet it appeared Musk and Tesla were “trying to be ahead of a slower delivery ramp this year and preserve margins ahead of an economic slowdown.”
Musk has referred to the risk of a recession repeatedly in recent comments.
Remotely addressing a conference in mid-May in Miami Beach, Musk said: “I think we are probably in a recession and that recession will get worse.” He added: “It’ll probably be some tough going for, I don’t know, a year, maybe 12 to 18 months, is usually the amount of time that it takes for a correction to happen.”
In late May, when asked by a Twitter user whether the economy was approaching a recession, Musk said: “Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen.”