What could Tesla's 10% cuts mean for Austin?

AUSTIN (KXAN) — On Friday morning, Reuters reported Austin-based Tesla is expected to cut 10% of its jobs.

The report cites a letter from Elon Musk, that also calls for a pause in hiring worldwide. Musk also said he had a "super bad feeling" about the economy.

President Biden commented on the move on Friday.

"Well, let me tell you. While Elon Musk is talking about that, Ford is increasing their investment overwhelmingly. I think Ford is increasing the investment in building new electric vehicles: 6,000 new employees -- union employees, I might add -- in the Midwest," he told reporters.

"So, you know, lots of luck on his trip to the moon," the President added.

A Central Texas Tesla employee confirms receiving a later email from Musk to employees, clarifying that the company would be "reducing salaried headcount by 10%.

"This does not apply to anyone actually building cars, battery packs or installing solar," Musk's email read. He added that hourly positions will increase.

KXAN sat down with three different economists, who all have different answers on what this could signal for the economy as a whole.

Q: Tell me a little bit about your initial reaction to the news this morning that Reuters broke about Elon wanting to cut his workforce by 10%.

A: "So this is happening at the speed of Elon. Elon is always ahead of the curve. He's not behind the curve. And he understands that a recession is coming. And he's preparing his business for that," Dirk Mateer, University of Texas-Austin Economics Department, said.

A: "He's being very cautious. He obviously anticipates some headwinds for the economy in the future. And so he's taking a precaution, not hiring any new people and maybe even laying off some people. Many analysts and... many investment banks have pointed out that we're headed towards a recession, perhaps later this year, early next year. With inflation being as high as it is, I think, that may be a great possibility. However, we probably need to have another month's data or two on inflation, before we can make a prediction," economics analyst Angelos Angelou said.

A: "Obviously, you never like to see these types of information, this type of information. But it's a company that's growing very, very quickly. We're a very fluid market right now. And so it's not something that I would put a great deal of concern into at this point in time. But certainly, it's something we're aware of, particularly because there's some fairly significant operations of some of his companies in the Central Texas area," economics analyst Ray Perryman said.

Q: Several experts say that we're heading toward a recession, how far away do you think we are from hitting that point?

A: "Well, frankly, I'm not one of those people. I think we're going to avoid the recession this time around. There was a job growth hiccup in the first quarter. But if you break those numbers down, that was because imports came up a lot, which basically says we're unloading the boats at the docks, that's when the things become the imports instead of just something in the water. And we're solving the supply chain problem. So again, there's a lot going on right now in a lot of different directions. But I'm not one of those who thinks we're headed for recession anytime soon," Perryman said.

Q: I know you don't have a crystal ball, but how far out do you think we are from possibly reaching the point of a recession?

A: "So we actually had a quarter of negative economic growth in the first quarter of this year. That was largely attributed to a lot of inventory adjustments and supply shocks. But that's different [than] what's happening here with Tesla, they're actually thinking that they aren't going to be moving as many vehicles and that demand may dry up. And they have every reason to believe that a lot of people have been coming out and saying, 'Gosh, we didn't think inflation was going to be this bad.' There are still supply chain issues. The economy is going to slow down due to higher interest rates. I mean, all these things are easy to see and easy to forecast. So do I think it could be soon? Maybe. Because the psychology of this is going to change quickly. It's going to change from, 'Oh, and there's inflation to oh, what does that mean?' So we're going to have to tighten our belts. And you see Tesla tightening their belts, we've seen other companies that make similar announcements. And so I think it could happen quite quickly. Maybe not in the second quarter here, but by the third quarter, would not surprise me at all," Mateer said.

Q: So you think it's too soon to tell if we'll hit a recession soon?

A: "The risk of recession is real. But again, it's a bit too soon, maybe another month's data on inflation would be key already, we've had a negative growth in our GDP in the first quarter of this year. So if this continues, then definitely we're headed towards a recession. But let me be clear here, a national recession, obviously will affect the US economy, but not necessarily Austin, because this is a place where there is demand-driven job market, housing market. So even though we may be selling fewer homes, because interest rates have gone up, and more people may not be able to afford those higher interest rates accruing in their mortgage. The market is still strong here, and prices will continue to rise. So I don't expect that we're going to have a housing recession in Austin or employment recession," Angelou said.

Possible local impact

The email announcements come nearly two months after the Austin-based company's massive grand opening of it's Travis County giga-factory.

Perryman said although Tesla is an important part of Austin's economy, it's strong enough to absorb the hit.

"Tesla is one of many, many large companies that are very successful in the Austin area," he said. "And it's highly unlikely that you're gonna see one single company making an announcement like this really moving the needle, a great deal on an economy as dynamic and diversified and and effective as the Austin area."

Angelou said a little bit of a downturn could have a positive impact on employment over time.

"The market can be given a little bit of a breather, if you will, to catch up, because we're still experiencing a significant labor shortage just throughout our economy, both in the high tech and the non high tech parts of it," he said.

Tesla also has partnerships with local educational institutions to help train more workforce.

Both Bastrop and Del Valle ISDs have Tesla hiring programs in which students attend training at Austin Community College's TESLA Start program before starting work in the factory.

Both districts told KXAN Friday that their programs are continuing despite Musk's announcements.

In an emailed statement to KXAN, ACC said they are also moving forward:

"Austin Community College's partnership with Tesla continues to grow. Neither the Tesla START Manufacturing program nor any other Tesla-affiliated program at the college is impacted by recent announcements and no impacts are expected. A new, 100-student cohort for the Manufacturing Development Program remains scheduled to begin later this summer and another START cohort will begin at the start of the fall semester."

Sydney Pruitt, ACC spokesperson