Elon Musk turns to his earlier playbook as Tesla girds for job cuts

Two weeks ago Elon Musk signaled Tesla Inc. was staying in the fast lane. Now he’s tapping the brakes.

The chief executive officer warned in an email to employees that Tesla plans to cut its “overstaffed” salaried workforce by 10%, according to people who received the memo and asked not to be identified discussing the details.

That surprised some analysts and industry watchers who have marveled at Tesla’s record-breaking deliveries even as it deals with shortages of critical parts. Shares of the company sank 9.2% on Friday — the steepest drop in five weeks — as investors digested Musk’s bearish take.

Just last month, the CEO crowed about a second “AI Day” to showcase the electric carmaker’s prowess in artificial intelligence, software and chips — a move designed in part to lure more engineering talent. A few days later, he tweeted that Tesla was building a “hardcore litigation department.” The auto manufacturer is also hiring to staff new factories in Austin and Berlin, where it expects to steadily ramp up production this year.

Tesla has ballooned to about 100,000 employees globally, and the number of hourly workers installing battery packs and solar roofs is expected to continue to grow. But Musk appears to be reaching back into his startup mode playbook to rekindle a sense of urgency. Now that Tesla has joined the ranks of the blue-chip S&P 500 index and has plenty of cash on hand, he is sending memos to stave off complacency instead of joking about staving off bankruptcy.

Tesla, which went public in June 2010, has been through cycles of rapid growth and reductions before. Tesla laid off about 700 workers in 2017 amid what Musk termed a “production hell” for the debut of its Model 3 sedan. A year later, the company let go 9% of its employees as it struggled to ramp up output.

In some ways, Musk’s missive shows how normal the company has become. Corporate downsizing is routine at American companies with large payrolls. Former General Electric Co. CEO Jack Welch was legendary for his ruthless system of firing the lowest-ranked 10% of employees every year.

More than 40% of the Austin, Texas-based company’s staff is now global as it expands rapidly outside the US and nearly 40% work on production lines.

The planned cuts were prompted by worries about a possible recession, according to a Reuters report earlier Friday, which cited Musk saying he had a “super bad feeling” about the economy. That comment drew scorn from President Biden, who dismissed the warning after being asked about it by reporters.

Famous Workaholic

Musk and CFO Zachary Kirkhorn did not respond to an email asking for context as to where within the company the salaried reductions would be focused. The top-selling EV brand’s CEO is known as a workaholic who puts his job ahead of everything else — and who has little tolerance for what he sees as sloth.

In recent weeks, Musk has praised Tesla employees in China, many of whom have been sleeping on the factory floor as part of a so-called “closed-loop” system meant to combat Covid-19. He lauded Chinese workers for “burning the 3 a.m. oil” while criticizing Americans who he described as “trying to avoid going to work at all.” That was followed by another memo laying down the hammer about the need for Tesla employees to resume in-person office work.

“Everyone at Tesla is required to spend a minimum of 40 hours in the office per week,” Musk wrote in an email entitled “To be super clear.” “Moreover, the office must be where your actual colleagues are located, not some remote pseudo office. If you don’t show up, we will assume you have resigned.”

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor