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IF Insights: Elon Musk finds new obsession in robotaxi as Tesla fights headwinds

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Tesla initially backed gigacasting to reduce its long-term manufacturing costs

More workers at Tesla began commenting on LinkedIn and other websites about receiving notification that their employment with the firm was coming to an end as the company’s painful wave of layoffs approached its fourth week. The layoffs affected the company’s software, services, and engineering divisions of the company.

The move is a reflection of the pressure faced by the EV giant in the form of dropping sales and an intensifying price war among automakers, as elevated interest rates have slowed the adoption of electric vehicles.

The company is now looking to focus on autonomous driving software, robotaxis and its humanoid robot Optimus, and analysts further see Elon Musk cutting his venture’s spending on certain teams to preserve cash for those projects. Tesla recently disclosed that it expected to book over USD 350 million in costs in the second quarter for the mass layoffs. The job cuts also included an exodus of top executives, including Drew Baglino, Rohan Patel, Rebecca Tinucci and Daniel Ho.

The company is reportedly working on “new models” that would use its current platforms and production lines, a move that is expected to let it better control capital expenditures, as per Reuters.

Along with these, add the poor timing displayed by Tesla by conducting Supercharger layoffs. And it has scaled back its plans for gigacasting manufacturing, in another sign that the EV maker may be panicking amid falling sales and rising competition.

The Gigacasting Mess

Tesla has been a leader in gigacasting, a cutting-edge technique that uses huge presses with thousands of tons of clamping pressure to die-cast large sections of the car’s underbody. In 2023, as the EV maker developed a new small-vehicle platform, it aimed to punch out the underbody in a single piece. The long-term goal was to radically simplify manufacturing and slash costs, as per Reuters.

However, Tesla has halted the effort, opting to stick with its more proven method of casting vehicle underbodies in three pieces: two gigacasted front and rear sections and a midsection made of aluminium and steel frames to store batteries.

“The decision to hold off on the potential manufacturing breakthrough marks another example of Tesla slashing short-term spending as it adjusts to falling sales and profit margins, softening EV demand globally, and intensifying competition from rival EV makers such as China’s BYD,” Reuters reported.

The company is focusing more on developing self-driving vehicles than on pushing for huge growth in EV sales volume, a move which may keep its investors happy.

Tesla has also halted the development of an all-new affordable car, often called the Model 2, which would have been the first vehicle it built with one-piece gigacasting. As per the reports, the automaker’s suppliers are now involved in adapting Tesla’s three-piece process for the next-generation vehicle.

Tesla initially backed gigacasting to reduce its long-term manufacturing costs. However, the process has a roadblock in the form of large initial investments, apart from being time-consuming to perfect.

“Experts in vehicle manufacturing said Tesla’s more conservative path on gigacasting is no surprise and in part reflects the pains it has experienced historically in launching complex and innovative vehicles on time. The automaker’s highly experimental Cybertruck arrived last autumn at a far higher price than predicted after substantial delays to work through manufacturing issues. Tesla is still struggling to produce the angular, stainless-steel pickup in mass-market volumes,” Reuters reported further.

Shedding Light Upon The Layoffs

Elon Musk abruptly firing employees in Tesla’s EV charging division has blindsided automakers gearing up to equip new vehicles for customers to use the Tesla Supercharger network, as per industry officials and analysts. In fact, Tesla’s industry peers General Motors and Ford struck deals in 2023 to give customers access to the network. The move even opened the door for Tesla to get federal subsidies to expand the reach of its North American Charging Standard (NACS) system.

Elon Musk’s decision to dismiss the head of the business, Rebecca Tinucci, and most or all of the staff that operated and maintained the system, according to two former employees and multiple postings on LinkedIn, left officials at automakers and Tesla suppliers uncertain about the future.

Andres Pinter, co-CEO of Bullet EV Charging Solutions, a supplier to the network, told Reuters, “As contractors for the Supercharger network, my team woke up to a sharp kick in the pants this morning.”

“Tesla has already been awarded money under the federal government’s NEVI programme,” he said, referring to the National Electric Vehicle Infrastructure formula programme to provide funding to states to deploy EV charging networks.

“There’s no way Mr. Musk would walk away from effectively free money. It may be possible Mr. Musk will reconstitute the EV charger team in bigger, badder, more Muskian way,” Pinter stated.

GM and Ford reacted to the news by stating they were not changing plans to equip their EVs with connectors that will allow drivers to recharge at Tesla stations.

Analysts believe that Elon Musk could have disbanded the existing Supercharger organisation to build a leaner and less expensive team to run the operations.

Elon Musk, however, stated that a business reorganisation was necessary every five years. Employees working under executives who “don’t obviously pass the superb, required, and trustworthy criteria” would lose their jobs, he added in an email to staff members, saying the corporation needs to be “totally hardcore” about the layoffs.

With declining sales and profitability that are down 55% year over year, Tesla is facing one of its worst financial circumstances in recent memory. In addition to dealing with the declining demand for EVs worldwide, the corporation is facing more competition in China and the US.

Sinking Profits

Tesla published its first-quarter earnings during a tumultuous period when sales and stock prices fell. Tesla’s net income was USD 1.1 billion on USD 21 billion in revenue, down 9% from USD 23.3 billion in 2023.

Automotive revenues fell 13% year-over-year. Operating costs fell by 37%. Net income for common stockholders fell 55%. Tesla has a negative free cash flow of USD 2.5 billion, indicating it has no cash after operating, capital, and noncash expenses.

The company’s car inventory climbed from 15 to 28 days last quarter. That significant rise indicates Tesla’s cooling demand issues.

Elon Musk received tough questions from investors about these numbers and recent allegations that the company has halted the development of Model 2. He delayed the project to focus on Tesla’s robotaxi. Investors expected the Model 2 to boost corporate growth.

The shareholder message claimed Tesla is utilising its production footprint to “introduce new and more affordable products.” It did not mention the Model 2.

Tesla reported weak sales earlier 2024, indicating that cooling EV demand and increased competition were hurting the company. Tesla shipped 386,810 vehicles in the first quarter, down 8.6% from 2023. The business expected 2024 growth to halt as it prepared to start 2025 vehicle manufacturing.

The Road Ahead

As Elon Musk made a sudden visit to China in April, he reportedly proposed testing Tesla’s advanced driver-assistance package in China by deploying it in robotaxis.

Before the full rollout of its Full Self Driving (FSD) functions, Tesla still needs to get approval to collect and transfer data that its cars need to train its driver-assistance features. Baidu, China’s major internet search company, has already concluded an agreement with Tesla, under which it will grant the car company access to its mapping license for data collection on China’s public roads.

With the mapping service license, Tesla will be permitted to legally operate its FSD software on Chinese roads and its fleets can gather data about the vehicle’s surroundings, such as road layouts, traffic signs, and nearby buildings.

All the above developments show Elon Musk’s “seriousness” about his robotaxi plans. And he has chosen China, the country where his venture faces the toughest competition, as the stage for launching the vehicle line-up. Will he stick to his plans in the coming months? That’s the billion-dollar question.

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