Tesla (NASDAQ:TSLA) is facing another employee lawsuit. Earlier this month, Elon Musk announced that Tesla would be laying off 10% of its salaried workforce. Now employees are alleging that the recent layoffs violated federal law due to the lack of advance notice. This news has not pushed TSLA stock down so far. Shares have been rising all morning, but mass layoffs never signal a positive turn for a company.
What’s Happening With TSLA Stock
TSLA stock experienced significant turbulence last week. This week, it is off to a better start. As of this writing, it is up 9% for the day, and although its gains are gradual, they are steady. It is an impressive performance for a high-growth tech stock in a bear market, particularly given the economic headwinds Tesla is facing.
Let’s take a closer look at the news of the day.
Why It Matters
June has been a complicated month for Tesla employees. Although Musk warned of 10% layoffs due to his “super bad” feeling about the economy, he later walked his statements back. But according to former employees of Tesla’s Nevada gigafactory, more than 500 employees were terminated without advance notice.
Under the Worker Adjustment and Retraining Notification Act, mass layoffs require notice of 60 days for all impacted workers. Reuters reports that the workers behind the suit are seeking class action status for all Tesla employees laid off during May and June of 2022.
According to the complaint filed, “Tesla has simply notified the employees that their terminations would be effective immediately.” As of this writing, Tesla has not commented on the number of layoffs or the lawsuit.
Given Musk’s back and forth statements on the layoffs, it has been hard to properly assess what they mean for Tesla. But if the electric vehicle (EV) leader is laying off this many people, it is not a good sign. Shares dipped 6% when Musk first issued his grim forecast earlier this month.
TSLA stock may be rising today, but mass layoffs don’t signal to investors that a company is healthy. And Tesla can’t afford to further compromise investor confidence. Its growth is dependent on scaling production. Therefore, laying off hundreds of workers isn’t likely to boost anything. The company is still struggling to regain the ground it lost in April 2022 when China’s Covid-19 outbreak forced cities to shut down. While TSLA stock is still trading relatively well, it may face further economic headwinds as markets become more turbulent. As InvestorPlace contributor Chris Lau notes, it is “poised to plunge” if the current “everything bubble” bursts.
What It Means
Is this specific lawsuit likely to push TSLA stock down? Not by itself. But it is important for investors to see the bigger picture. Tesla is laying off a lot of workers. That’s not usually something healthy companies do. It will be hard for investors to have faith in Tesla’s growth potential if it is laying off workers and violating federal laws to do it. The company has survived lawsuits before, but the legal proceedings aren’t as worrying as what spurred them.
The upcoming TSLA stock split may be what pulls Tesla out of its current rut. But even as momentum builds, investors shouldn’t ignore what is going on behind the scenes at Tesla. Workforce reductions don’t spur sustainable growth.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.