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.

Source: Saxo Group
Source: Saxo Group
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

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

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.