Tesla slashes 9 percent of workers, but Musk says Model 3 output on track – By Rex Crum (eastbaytimes.com) / June 12 2018
PALO ALTO — In its nearly 15 years of existence, Tesla has experienced almost every phase of a successful company, going from a seemingly crazy idea to a startup, to creating a product like none other on the market, to going public, to becoming the standard-bearer for a technology that could upend an entrenched industry.
And now, it’s going to shrink.
On Tuesday, Tesla Chief Executive Elon Musk said that due to a need to “reduce costs and become profitable,” the electric carmaker will slash 9 percent of its workforce. The move is part of what he had earlier said would be an effort to streamline its operations via a “flattening” of its management structure. The job cuts will affect approximately 3,800 Tesla employees, though production workers will be spared.
The layoffs come amid unionizing efforts at the company’s massive Fremont vehicle-manufacturing plant, as Tesla makes an all-out push to ramp up production of its new, lower-priced Model 3 sedan, while delays have tried the patience of many customers who already paid deposits for the vehicles.
“These cuts were almost entirely made from our salaried population and no production associates were included, so this will not affect our ability to reach Model 3 production targets in the coming months,” Musk tweeted Tuesday afternoon.
“Tesla has grown and evolved rapidly over the past several years, which has resulted in some duplication of roles and some job functions that, while they made sense in the past, are difficult to justify today,” Musk said, explaining the cuts.
A Tesla spokesperson wouldn’t say how many of the cuts would specifically come from around the Bay Area, but said they will be company-wide.
Musk said the company was notifying affected employees this week. “We made these decisions by evaluating the criticality of each position, whether certain jobs could be done more efficiently and productively, and by assessing the specific skills and abilities of each individual in the company,” Musk said.
Tesla also won’t renew a retail sales agreement with Home Depot to sell some of its solar power products at the home-improvement store chain, Musk said. Tesla will now focus on selling solar power products at its own retail stores and online, and the majority of Tesla employees at Home Depot stores will be offered jobs at Tesla stores, he said.
Tesla has approximately 10,000 employees at its factory in Fremont. With the Tesla name emblazoned across its front, the factory is one of the most recognizable manufacturing facilities in the region.
Last month, Tesla sought to show just how big of a role it plays in the economy of the Bay Area, and the entire state of California, by publishing the results of a study it commissioned from research firm IHS Markit. That report showed Tesla operations directly contributing $2 billion to California’s gross state product in 2017, and $5.11 billion when accounting for Tesla suppliers, contractors and their associated impact upon businesses across the state.
Following the layoff announcement Tuesday, a spokesperson for the United Auto Workers Union, which has been trying unionize Tesla employees at the Fremont factory, said the union had no comment about how, or if, Tesla’s announcement might affect their efforts.
In May, Musk said there was “nothing stopping (the) Tesla team at our car plant from voting union,” but that the employees don’t want to be represented under the UAW umbrella.
“The union issue is still a fluid situation, so the jury is still out how this will play out at Tesla, said Daniel Ives, head of technology research at GBH Insights. “This (the job cuts) was the right medicine at this time for Tesla as Musk and company are looking toward a more efficient structure while still hitting their elusive weekly Model 3 production target.”
The layoffs begin at a critical time for Tesla, as the company boosts production of its Model 3 sedan, with a goal of producing 5,000 such cars a week by the end of June. The company had twice extended manufacturing goals for the car, which is intended for mass-market adoption once a lower-cost, $35,000 version goes into production.
“The magnitude of the cuts was more than we expected,” said Gene Munster, of technology research and analysis firm Loup Ventures, who had anticipated Tesla would shed around 5 percent of its workforce following Musk’s “flattening” statement from early May. “This is a pivotal point in the Tesla story, but it sends a strong message that everyone at the company needs to pull together to get through to its next stage.”
Tesla said after the cuts it would still have more employees than it had at the beginning of 2018. The company said it began this year with about 37,000 workers, and has added several thousand jobs this year.
The job-cut announcement didn’t seem to have an immediate effect on Tesla’s hiring plans. A look at the job openings on Tesla’s website showed hundreds of positions available across the company, including at its Fremont factory, which had openings for everything from automotive painters to Model 3 equipment maintenance dispatchers to tool and die specialists in its auto-assembly areas.
Tim Bajarin, president of San Jose-based tech consulting firm Creative Strategies, said that while Tesla claims the job cuts wouldn’t affect the company’s production for the Model 3, in particular, shaking up the management staff could end up having some fallout for those employees on the assembly line.
“These (cuts) are coming from salary employees which tends to be management positions. If that is the case, this could impact their overall productivity even if it does not impact manufacturing directly,” Bajarin said. “It will be important to monitor the impact of these layoffs over time to see just how much it impacts the company overall. But, if it can be managed properly, it could finally get them to a level of profitability in the near future.”
