"Super bad feeling": Why Elon Musk's concern about economy may cause layoffs of 10% Tesla employees

A Reuters report based on an internal email at Tesla revealed that CEO Elon Musk will reduce its salaried headcount by 10% because it has become "overstaffed in many areas." The email also stated that he has a "super bad feeling" about the economy.

The message, titled "pause all hiring worldwide," was sent on Thursday, joining an increasing number of warnings of a potential recession from business leaders around the world.

In an earlier email this week, Musk urged Tesla employees to either return to work or leave the company.

“Everyone at Tesla is required to spend a minimum of 40 hours in the office per week, and if you don't show up, we will assume you have resigned."

In a statement that sparked a renewed debate over the future of work, Musk demanded that Tesla employees stop "phoning it in" - a move that got the cold shoulder from Germany's largest trade union on Thursday.

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Why did Elon Musk hint at a potential layoff?

Elon Musk's warning of a potential recession and its ramifications for automakers is the industry's most direct and high-profile forecast of its kind.

According to its annual SEC filing, Tesla and its subsidiaries employed nearly 100,000 people at the end of 2021. It did not differentiate between salaried and hourly workers.

Even amidst fears of a recession, the demand for Tesla cars and other electric vehicles has remained strong, as have many of the other traditional indicators of a downturn. However, Musk's company has struggled to restart production at its Shanghai plant after COVID-19 lockdowns forced costly outages.

Following the Reuters report, Tesla shares fell 9% in US trading on Friday. The tech-dominated Nasdaq was down by about 2%.

Back in June 2018, Musk had announced something similar when he had said that Tesla would cut 9% of its workforce as the then loss-making company struggled to ramp up production of Model 3 electric sedans. Later SEC filings showed that the reductions were more than offset by hiring by year's end.

In the United States, inflation has hit a 40-year high, raising the cost of living for Americans, while the Federal Reserve faces the difficult task of dampening demand enough to curb inflation while avoiding a recession.