Auto companies old and new have held up remarkably well amid the pandemic. Stark early warnings about an unprecedented shock to an industry that would maybe need another cash for clunkers-style shot in the arm look awfully alarmist a couple years later.
After positioning themselves as purveyors of the ultimate social distancing devices, several manufacturers are more profitable than ever. It hasn’t been entirely smooth — the chip shortage has kept companies from producing millions of cars consumers are buying right off delivery trucks. The conventional wisdom nonetheless has been that all sorts of pent-up demand awaits once various global supply chain crises ease.
A spate of job cuts and commentary the last few weeks suggest the sector is no longer so sure.
Rivian Automotive is the latest taking a hard look at headcount, Bloomberg reported first on Monday. Eight months after its massive initial public offering, the electric-truck maker may dismiss around 5% of its more than 14,000 employees, people familiar with the matter said.
Before this, Argo AI, the self-driving startup backed by Ford and Volkswagen, laid off 150 workers. Stellantis agreed to as many as 1,820 voluntary job cuts in Italy, two unions said. The Jeep maker also announced this month it will decommission an engine line in Michigan by year-end.
Ford itself warned of European job cuts in June, when it revealed plans to shut a factory in Germany and shrink its workforce at a site in Spain, which will need fewer staff to build EVs.
The company that kicked off the trend was, who else, Tesla. Chief Executive Officer Elon Musk said in mid-May the US was probably in recession, and started to act on his “super bad feeling” about the economy weeks later. He’s said about 3.5% of Tesla’s total workforce will be let go over three months.
It would be unwise to paint all these moves with the same brush.
Rivian has expanded staff much more rapidly than it’s ramped up assembly lines, some of which have run only 25 to 30 hours certain weeks as the company waited on more supply of semiconductors. While the chip bottleneck has started to improve and Rivian hopes to run two shifts by the end of the year, CEO RJ Scaringe isn’t taking the company’s more than $17 billion cash hoard for granted.
Argo AI similarly needs to be prudent in light of the less receptive environment for high-risk, high-reward companies that still have a lot to prove. Stellantis is highly exposed to an exceedingly weak European car market, and its engine line in Michigan will be far from the last to go down as the industry electrifies.
Ford CEO Jim Farley was frank in February when he said the company employed too many people. Tesla’s Musk has been much less clear about his abrupt dismissals at Tesla, but he’s provided a characteristically colorful hint of what’s behind it by calling the company’s two new plants in Germany and Texas “gigantic money furnaces.”
For all these unique circumstances, we may find out in the coming weeks that many of these companies have a lot in common. Quarterly earnings previews are grim reading, with UBS sounding the alarm about “potential first cracks” in results. Analysts there and at Jefferies are trimming projections for next year, while RBC Capital Markets has suggested upcoming reports may be “a clearing event” for suppliers that look poised to disappoint.
“In auto,” RBC analyst Joe Spak wrote in a report early this week, “if it’s not one thing, it’s another.”
–By Craig Trudell and Edward Ludlow
–With assistance from Keith Naughton and Dana Hull