Should investors be worried about Tesla?

Shares of You’re here (NASDAQ: TSLA) were criticized on Friday, falling more than 9%. The growth stockTesla’s slide came as Tesla CEO Elon Musk expressed concerns about the economy in an email to employees, according to Reuters. Additionally, Musk said the electric car company plans to cut about 10% of its workforce.

This news comes at a dark time for the economy and a tough few months for Tesla. Regulations in China relating to policies aimed at curbing the spread of COVID-19 in the region negatively impacted the automaker’s supply chain in 2022, including periods of interrupted and limited production at the important plant. company in Shanghai.

Given everything going on, should investors be worried about Tesla?

Remember: sales are exploding

While it’s possible that Tesla’s second quarter will go worse than expected, there’s still a good chance things will be rosy compared to how many other companies are getting along in these trying times. For example, Tesla’s first-quarter production and shipments soared 69% and 68%, respectively. Additionally, management said it expects production to grow by 50% or more for the full year despite the challenges it faced due to limited production in China and production constraints. from some of its suppliers.

Additionally, Tesla has raked in huge amounts of free cash flow. In the first quarter of 2022, free cash flow was $2.2 billion, up 660% year-over-year. Net income was $3.3 billion, representing a more than six-fold increase. Financial services like this help businesses through tough times and twists and turns.

Given the automaker’s recent momentum and management’s comments on its full-year expectations at the time of its first-quarter update, any worse-than-expected performance from Tesla will likely be far from a result. mediocre, even mediocre commercial. Indeed, the company is likely to grow much faster than any other major automaker in 2022, even in a tumultuous economic environment.

Tesla factory. Image source: The Motley Fool.

Tesla has already laid off

It’s also worth noting that Tesla is no stranger to layoffs. The company laid off employees in 2019 as part of its Model 3 production ramp-up. It has been able to maintain extraordinary growth rates despite a workforce reduction of around 7%.

While it’s unfortunate for employees who lose their jobs, the reality is that companies can become bloated over time when it comes to headcount. From time to time, therefore, it may be wise for a company to reassess which jobs are most essential and which may not be necessary.

Given the success of Tesla’s latest layoffs, chances are this one will also have a positive impact on the company.

Tesla will leave its production workforce intact

Finally – and most importantly – investors should keep in mind that this is a strategic layoff, leaving some important departments untouched.

“Note that this does not apply to anyone who actually builds cars, batteries, or installs solar power,” Musk wrote in the purported email to employees.

This is essential because Tesla has remained limited in its offer. In other words, demand continues to exceed supply; the bottleneck of the company at the moment is therefore the production of vehicles.

Overall, this strategic downsizing is likely good news for Tesla investors, as it could make the company more nimble in uncertain times. While downsizing doesn’t make sense for every industry or every company, it will likely prove a good move for a capital-intensive company like Tesla in a highly competitive industry.

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Daniel Sparks has no position in the stocks mentioned. Its clients may hold shares in the companies mentioned. The Motley Fool holds positions and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.