Tesla Motors Inc. (TSLA, Financial), the electric-car maker, has announced that it will cut around 180 jobs in China. The company cited slower sales as a reason for this move. This move shouldn't come as a surprise after the company launched its restructuring plans earlier in 2015. 2014 saw the company double its staff from 5859 to 10,161. However, the Chinese market in particular, did not seem to give the company enough orders to keep going. During the period of nine months in 2014, Tesla managed to register just 2500 orders in China, according to research firm JL Warren Capital. They have 9 auto-showrooms and service stations over China, and has partnered with China Unicom (CHU, Financial) and Soho China Ltd. (HKSE:00410, Financial), among many to build charging stations.
A look back
Tesla was founded in 2003 and currently has its headquarters in California. The company specializes in electric cars and components of the electric vehicle powertrain. The EPS Diluted before Nonrecurring Items for the fiscal quarter end December 2014 was -$0.48. Total revenue was $956.66 million and gross profit for the quarter was $261.7 million. Tesla started delivering car models to China on April 22, 2014. Given the current position of the automobile company, we hope it can sustain its base in the Chinese markets.
Gary Tao’s statement
Out of the 600 existing employees in China, 181 positions will be eliminated. That is, almost 30% of jobs will be cut. A local spokesperson, Gary Tao, said that these positions will be eliminated so as to bring about structural changes to the Chinese business. Economic Observer, the local Chinese paper, reported that since actual sales did not meet the expected sales, the move had to be made. Most of the laying off will take place in the sales department. Other departments will also face the heat as the marketing division, PR and administrative team will also face elimination. Tao said that the new team will continue to remain strong and stable. The restructuring will start soon, maybe the beginning of the year, he said.
Sales drop
Tesla was confident a year back that they would make huge profits once sales started gradually increasing. Chief Executive Elon Musk said that, if Tesla would sell 5,000 automobiles in 2014, venturing into Chinese markets would be a success. The target is to sell 500,000 cars per year by 2025. However, mid 2014 a few outraged customers resorted to protests due to late deliveries of the ordered cars. Tesla also faced the problem of change in management. Veronica Wu, Tesla China president, had resigned and Tom Zhu filled in. Another issue was setting up of a home charger. Chinese people live in apartments rather than U.S.-style single-family homes. Hence, owning a family garage would be a rare spotting in China. Property managers and Tesla employees sat together to address this complicated problem. Wall connectors were set up in customers’ homes for free, but competition from local automobile brands like BYD and Kandi were tough. Elon Musk however, said that "there was a misconception that charging was difficult." Aggressive targets set by Tesla were not met in China and it is said that Elon was prepared to remove overseas executives if efforts in turning around operations did not have a positive impact. Higher prices were also an issue as import taxes levied was very high.
Conclusion
A recent data also points out to the fact that Tesla is witnessing poor sales of automobiles for the start of 2015. 469 cars were registered for January 2015. This figure was on similar lines with the sales from November 2014 where 471 cars were registered. December 2014 however saw only 442 registrations in China. In December, Tesla had imported 440 Model S cars to China while in January only ten were imported. This shows a sharp decrease in the automobile sales in China. The U.S. automobile giant however refused to make any comments on the numbers. Tao said that Tesla is not leaving; rather they are trying to serve the Chinese market.
