Cost Cost Cost

Cost cutting sets in with Tesla considering to cut 10% of workforce

Equities 5 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Technology companies seem to be executing the advice in the latest Sequoia Capital presentation arguing for companies to cut down on costs now and improve profitability or else face a survival mode as the economy and investing landscape have changed. Companies are no longer reward for breath neck revenue growth at all costs. Tesla is the latest company to set its eyes on cost cutting with Musk pausing hiring worldwide and stating that the EV-maker must cut 10% of workforce.


Technology companies are executing the Sequoia Capital memo

Wednesday night we saw a bunch of earnings releases from Elastic, MongoDB, UiPath and Pure Storage (listen to our 2 June podcast for our earnings stake on these companies) all delivering higher profitability (or narrower loss) than estimated by analysts suggesting cost cutting is widespread in the corporate sector. Effectively, it seems technology companies are reacting to the advice of Sequoia Capital to cut costs now and adapt to survive the coming crisis. Companies are no longer being rewarded for high revenue growth at all costs, but are instead rewarded for increasing return on invested capital and free cash flow generation. Besides these latest positive earnings releases from tier 2 technology companies sentiment has generally been positive and extended yesterday, but this morning Tesla is pouring cold water on the momentum taking the Nasdaq 100 futures lower.

Elon Musk, the CEO of Tesla, says that EV-maker needs to cut staff by 10% as he has “super bad feeling” about the economy in an email that Reuters has seen. The email headline says “Pause all hiring worldwide” and follows up on his latest two emails saying all workers must work at designated Tesla offices instead of remote suggesting pressures are increasing for EV-maker as elevated energy and metals prices are eating into gross margins (excluding the sales of its Autopilot software). We do not have a high confidence in Musk’s ability to predict the economy, or anything for that matter, but he is seeing things globally that is warranting this move and as such the decision carries valuable information about the trajectory of the global economy echoing Jamie Dimon, CEO of JPMorgan Chase, saying yesterday that the economy is headed into a “hurricane”. Tesla shares are down 3% in pre-market trading.

3_PG_1
Source: Saxo Group
3_PG_2
Source: Saxo Group

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.