When a company lays off staff to cut costs- can it ever be positive? Does it show poor foresight in the first place? - Seedly
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Anonymous

Asked on 13 Mar 2019

When a company lays off staff to cut costs- can it ever be positive? Does it show poor foresight in the first place?

TSLA just did so for its global recruiting team.

https://electrek.co/2019/03/12/tesla-fires-almost-half-its-global-recruiting-team-in-attempt-to-cut-costs/

Sign of poor foresight or doing what needs to be done given their cashflow issues?

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Junus Eu

Junus Eu

Level 9. God of Wisdom

Answered on 13 Mar 2019

Good for investors to take note of as a significant reduction in costs (staffing costs tends to be a sizeable bucket). But also look at how the growth is trending as it could be a sign of the company downsizing.

Sometimes it could be due to the company getting rid of a very unprofitable business unit. In which case, getting rid of that business and it's related headcount makes sense. With all lay offs, it's good to see what the rationale is.

That said, it's of course not pleasant for the people being let go, and large company side cuts often lead to a drop in company morale etc.

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Yeo Enk Loui

Yeo Enk Loui

Level 6. Master

Answered on 13 Mar 2019

Not always!

There could be a few reasons why they are laying off staffs

1) Perhaps the company is restructuring and looking to improve its margin, which is ultimately good for investors

2) Perhaps these companies may be looking at introducing automation/tech and hence do not require so many employees anymore. especially with the focus on Industry 4.0. Example for this would be BMW, which is having smart factories that requires minimal employees, using robots instead.

3) Catching on with shift in trends. Using the case of General Moters, which fired over 14,000 workers and closed down 5 plants and discontinue several sedan models in order to prioritize electric and self-driving cars. (Shares rosed around ~5% when the news was announced, just to show how news like these may not always be perceived negatively by investors).

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