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Shares of Tesla drop after company announces layoffs due to concerns about decreasing demand.

Elon Musk, CEO of Tesla, recently delivered the unsettling news that the electric vehicle company will be eliminating more than 10% of its global workforce. This decision comes in light of decreasing demand, leading to a significant drop in Tesla’s stock price by almost 6%. The market response stands in stark contrast to previous instances where job cuts had a positive impact on stock performance, demonstrating the unique challenges that Tesla currently faces.

Tesla CEO Elon Musk arrives for a U.S. Senate bipartisan Artificial Intelligence Insight Forum at the U.S. Capitol in Washington, D.C., Sept. 13, 2023.

Andrew Caballero-Reynolds | AFP | Getty Images

Despite previous layoffs having a relatively positive impact on Tesla’s stock performance, the current situation paints a different picture. The automaker has been grappling with a decline in vehicle deliveries, particularly in the face of increased competition from Chinese EV manufacturers like BYD and Xiaomi. Prior to the layoffs, Tesla had already been implementing price cuts and incentives to boost sales, potentially impacting profit margins.

Analysts and investors have expressed concerns about Tesla’s ability to address the issue of decreasing demand. With 18 analysts lowering their price targets for Tesla shares and no signs of increased bullishness, the company continues to face uncertainties. Questions loom around the potential launch of the low-cost Model 2 and the recent price cuts on their Full Self-Driving (FSD) system.

Tesla Model Y, equipped with FSD system. Three front facing cameras under windshield near rear view mirror.

Mark Leong | The Washington Post | Getty Images

In addition to layoffs, key executives like Drew Baglino and Rohan Patel have announced their departure from Tesla, further adding to the company’s challenges. Musk emphasized the need for cost reductions and increased productivity in his memo regarding the layoffs, yet the underlying concerns about demand persist.

As Tesla navigates through a tumultuous period, marked by intense competition and market uncertainties, the leadership and strategic decisions made in the coming months will be crucial in determining the company’s trajectory. Stay tuned for further developments as Tesla faces these critical challenges in the rapidly evolving electric vehicle industry.

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