Tesla job cuts heighten Wall Street concerns that EV maker faces a demand problem

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.

Companies often see their stock price jump after announcing job cuts, as Wall Street rallies around the prospects for improved efficiency and profits.

But that's not how investors treated the latest news out of Tesla . Shares of the electric vehicle maker tumbled almost 6%, falling to their lowest since May of last year, after CEO Elon Musk told employees the company is eliminating more than 10% of its global workforce.

"There is nothing I hate more, but it must be done," Musk wrote in a memo about the layoffs.

Tesla shares have been spiraling since the calendar turned, tumbling 29% in the first quarter, the worst period since late 2022 and the third-steepest drop since the company's initial public offering in 2010. The stock is 60% below its peak reached in November 2021.

Previous layoffs haven't drawn such market pessimism. In 2018, when Tesla cut 9% of headcount, shares rose more than 3%. In 2022, the stock plunged 9% on initial reports around layoffs but recovered after Musk made clarifying comments days later.

The Tesla of today finds itself in a different kind of predicament.

Earlier this month, the automaker reported a drop in vehicle deliveries in the first quarter, the first annual decline since 2020 when the Covid pandemic disrupted production. In China, Tesla has faced an onslaught of competition from domestic EV makers, including BYD and the phone maker Xiaomi.

Prior to the layoffs, Tesla had been cutting prices and providing other buyer incentives, leading to likely margin erosion. Last week, the company said it's slashing the subscription price of its premium driver assistance system, marketed as Full Self-Driving (FSD), by half for customers in the U.S. FSD doesn't make vehicles autonomous and requires an attentive driver at all times.