Tesla (TSLA) shares fell 2.7% on Tuesday to their lowest closing level in nearly a year. Shares are now down 8.3% to open the week after the company announced a “more than 10%” staff reduction early Monday.
The continued stock slide for the EV maker follows new revelations of deeper cuts to certain divisions in the company that point to a riskier bet by CEO Elon Musk on robotaxis and autonomous software.
While Musk said in a memo that the “duplication of roles and job functions in certain areas” due to rapid growth necessitated the layoffs, later reports from Tesla sources suggested the cuts were well over 10% and hit certain divisions harder. Reuters reported “heavy layoffs” in Tesla’s service center division, China sales team staff, and of at least 140 engineers in the US.
EV blog Electrek reported that Tesla used the latest round of layoffs to dispatch several projects that Musk was no longer in favor of, including the lower-cost next-gen EV.
Musk shut down a project known internally as “NV9,” which aimed to build a $25,000 next-gen EV — which some have dubbed the “Model 2” — at Giga Austin. “Instead, Musk asked for all resources to go into the Robotaxi program and, specifically, a new data center to be built in an ongoing expansion at the factory,” Electrek said.
Concurrently, Tesla is building another data center, powered by its Dojo supercomputers, in New York to ramp up its AI efforts for developing its self-driving software, which would be the software backbone of the Tesla robotaxis.
The departure of longtime Tesla exec Drew Baglino also indicates a pivot. As senior vice president of powertrain and energy engineering, Baglino led huge projects at Tesla, including the “4680” battery cell production and cathode facility at Giga Austin, Electrek said. Baglino likely had a hand in the development of the Model 2 as well.
“Baglino is an absolute gut punch loss in our view as he was instrumental in the powertrain and energy initiatives at Tesla and was viewed by many as key to the Model 2 initiative over the next few years,” Wedbush analyst Dan Ives said in a note to investors, adding that the Baglino departure was “very unexpected.”
Investors and analysts believed part of Tesla’s big growth story would be its long-rumored next-gen vehicle that would start at around $25,000; however, reports last week suggested Tesla had canceled the vehicle. Musk responded to the report claiming it was false and revealed that a Tesla robotaxi debut would be coming on Aug. 8, though he did not officially address the status of the $25,000 next-gen vehicle. If new reporting is correct, the cheaper next-gen vehicle has been canceled, or at least delayed indefinitely.
Furthermore, Tesla recently cut the subscription price for its Full-Self Driving (FSD) software in its cars by half to $99 a month and started offering a 30-day free trial of FSD for new buyers, suggesting that Musk and Tesla want to showcase and increase the user base of its self-driving software.
For Wall Street analysts, the focus on robotaxis and FSD to power the future growth of the company comes at considerable risk.
“If Tesla were to confirm that its renewed robotaxi focus comes at the expense of Model 2, we believe this would introduce considerably higher risk profile for the stock, and remove a key reason many shareholders currently own it,” Deutsche Bank analyst Emmanuel Rosner wrote in a note to investors. “More critically, this change in strategy would also make any upside from here tied to Tesla cracking the code on full driverless autonomy, which represents a significant technological and regulatory challenge.”
Tesla’s focus on robotaxis and fully autonomous driving at the expense of near-term projects like the cheaper next-gen vehicle is a concern for Morgan Stanley’s Adam Jonas, even though his long-term bull thesis on the stock relies on Tesla solving the robotaxi and self-driving puzzle.
“We anticipate it may be difficult for Tesla to convince investors of the ability to achieve commercial scale [for robotaxis] under a timeline relevant to most investors,” Jonas wrote in a note last week following Musk’s announcement of the robotaxi reveal. He added that he was also “concerned at the margin of the level of enthusiasm amongst some investors around the improvements of the FSD v12.”
Despite this, over the long term, Jonas believes that business units like “Tesla Mobility” and “Tesla Network Services,” which include rideshare, robotaxis, and self-driving, among other initiatives, account for $165 of Morgan Stanley’s $310 price target, whereas the core automotive business is worth only $62.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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