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Billionaire Elon Musk and a special premonition about the auto industry

Specifically, on June 4, Tesla CEO Elon Musk told top managers he has “extremely bad feelings” about the economy and that Tesla needs to cut about 10% of its salaried employees on a monthly basis, because of “an excess of staff in many areas.” , but “the number of hourly employees will increase.” “Please note, this doesn’t apply to anyone actually building cars, battery packs, or solar installations,” Musk said. written in an email seen by Reuters.

The email, titled “pause all hiring worldwide,” sent to Tesla executives, highlights the increasingly bleak global economic outlook with soaring prices, and war. in Ukraine passed the 100th day.

The message from Musk came shortly after Jamie Dimon, chairman and chief executive officer of JPMorgan Chase, said the US economy faces challenges that resemble a “storm”.

At the same time, Musk’s warning was the first loud and public warning for the auto industry. “Tesla isn’t a canary in a coal mine. It’s like a whale in a lithium mine,” Morgan Stanley analyst Adam Jonas said in a research note, referring to the metal used. in EV car batteries.

“If the world’s largest EV company warns about jobs and the economy, investors should reconsider their forecasts for leading margins and growth,” he added.

Elon Musk recently gave a

Elon Musk recently gave a “bad hunch” about the economy that could be a “canary in the coal mine” moment for the auto industry. Photo: @AFP.

Originally, two years ago, the auto sector was hit by the outbreak of the COVID-19 pandemic, which forced factories to close. That outage then played a large role in the semiconductor chip shortage that made it harder to produce vehicles.

Now, supply chain troubles, exacerbated by Russia’s invasion of Ukraine, have dragged down sales. According to Wards Intelligence, US new car sales in May hit a low of 12.68 million units. That’s a far cry from the glory days of 17 million units a year before the outbreak of COVID-19. However, those issues mainly affect supply, while inflation is a threat to demand.

“The risk of a recession is high, so what he’s saying is certainly not extreme,” said Jeff Schuster, president of global forecasting at LMC Automotive.

Ride-hailing companies Uber Technologies Inc and Lyft Inc said last month they would cut hiring and cut spending, while online used-car retailer Carvana said it would cut its fleet by 12%. its workforce. Meanwhile, other companies are also watching closely.

“We’re not as pessimistic as Elon Musk, but we’re being cautious about our hiring and spending,” said John Dunn, CEO of Omnium Clean Energy Systems, which makes low-emission systems. and fuel) said in a statement.

Tesla CEO Elon Musk tells top managers he has

Tesla CEO Elon Musk told top managers he has “extremely bad feelings” about the economy and Tesla needs to cut about 10% of its monthly salaried employees. Photo: @AFP.

Industry officials are also worried about a possible recession. “The auto industry is racing to the safe harbor of pent-up demand, but could deliver higher offsetting sales for years to come,” said Tyson Jominy, vice president of JD Power. But the rising economic storm clouds could destroy much of that demand at this stage.”

‘Let’s take action’

Josh Sandbulte, chief investment officer of Greenhaven Associates, a money management firm that is a major investor in the automaker General Motors Co, was in New York City this week for a conference of the automakers. Alliance Bernstein. Finance CEOs predict a much bleaker outlook than other business leaders, he said.

While Musk’s email sounds far more pessimistic than that of other production leaders, Sandbulte said: “We are in a time of disagreement, and frankly, the world of finance and the world of finance. Business leaders don’t match each other on the direction of the path in the midst of the bleak front. But at some point, we will get the answer as to who did the right thing.”

And industry officials point to Tesla having problems of its own, including being able to hire too quickly for its growth rate. Tesla’s employment has doubled since the end of 2019 according to the company’s annual report, and Morgan Stanley’s Jonas noted that Tesla’s US sales are heavily concentrated in California, and especially in the San Francisco Bay Area, where Silicon Valley companies are located.

High-tech workers with stock-based fortunes are Tesla’s key human capital base. But right now, some big tech companies are cutting staff, and smaller startups are having a harder time getting funding.

Barry Engle, the former Ford and GM executive who founded Qell, a transportation-focused investment firm, said all of that may be true, but Musk’s fears cannot be ignored. .

He said: “Recession is more and more likely. Elon and everyone else knows that. The difference is that as a businessman, as a billionaire, he has a tendency to act. and speak the truth more naturally, even if no one wants to hear about the prospect.”

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