Tesla’s 400 Layoffs Are Electrifying

tesla-named-most-innovative-company-668x409Luxury electric vehicle maker Tesla Inc (TSLA.O) fired about 400 employees this week, including associates, team leaders and supervisors, a former employee told media outlets on Friday.

The dismissals were a result of a company-wide annual review, Tesla said in an emailed statement, without confirming the number of employees leaving the company.

Elon Musk, company investor and chairman, will take over as CEO, replacing Ze’ev Drori, who will join the board. Layoffs are also planned as part of a corporate review.

“It’s about 400 people ranging from associates to team leaders to supervisors. We don’t know how high up it went,” said the former employee, who worked on the assembly line and did not want to be identified.

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Chairman Elon Musk is now CEO, continuing his activities in product development. Former CEO Ze’ev Drori is now vice chairman of the board and is expected to remain active in Tesla operations, according to a company representative, who did not give a reason for Drori’s replacement.

The Palo Alto, California-based company said earlier in the month that “production bottlenecks” had left Tesla behind its planned ramp-up for the new Model 3 mass-market sedan.

The company delivered 220 Model 3 sedans and produced 260 during the third quarter. In July, it began production of the Model 3, which starts at $35,000 – half the starting price of the Model S.

In July, it began production of the Model 3, which starts at $35,000 – half the starting price of the Model S.

This isn’t the first time that the high-profile carmaker has replaced its CEO since its founding five years ago. Former CEO and co-founder Martin Eberhard was ousted in 2007 by Musk after production delays.

Tesla last month said it intends to make a $250 million investment to construct a corporate headquarters and facility to manufacture its Model S all-electric luxury sedan, which is due in late 2010. But the economic downturn will mean that the start of production of the Model S will be pushed back until mid-2011, Musk said Wednesday.

elon-musk-teslaMr. Musk, who made his fortune as co-founder of PayPal, posted a message to the company blog, saying the layoffs are part of efforts to make Tesla cash flow-positive in the next six to nine months. Like the company representative CNET spoke with, he did not provide a specific reason for Drori’s change in position.

“For this critical phase of the company, the scope of my role at Tesla will expand from executive chairman and product architect to CEO. With SpaceX now having reached orbit and about to enter its third year of profitability, I can afford to increase time allocated to Tesla,” Musk wrote.

He said the layoffs would be “modest” and will include closing Tesla’s Detroit office. Tesla will also focus on its revenue-generating businesses, namely its Tesla Roadster electric sports car and its profitable powertrain business.

To finance its planned expansion, the company intends to take advantage of a Department of Energy loan guarantee, which will make the cost of borrowing far lower than from other sources, Musk added. “We are not far from being cash flow-positive, but, even if that threshold ends up being further than expected, I will do whatever is needed to ensure that Tesla has more than sufficient capital to get there.”

In multiple interviews, former and current employees told this news organization little or no warning preceded the dismissals. The workers interviewed include trained engineers working on vehicle design and production, a supervisor and factory employees.

Workers estimated between 400 and 700 employees have been fired. Tesla refused to say how many employees were let go, although the company expects employee turnover to be similar to last year’s attrition.

The spokesman said most of the dismissals were administrative and sales positions, and outside of manufacturing. Tesla employs about 10,000 workers at its Fremont factory.

Workers spoke on the condition of anonymity because they feared reprisals from the company. Employees said the firings have lowered morale through many departments. Several said Model X, Model S and former SolarCity operations seemed to be targeted.

Juan Maldonado, a production worker, felt the tap on his shoulder on Thursday. He worked at Tesla for nearly four years, and said he heard about 60 other workers in his section of the factory were dismissed.

Maldonado, 48, said he ran late for work twice in recent months, but thought he had straightened things out with his supervisor. Now, he said, “I’m going to try to find a job.”

CEO Elon Musk said factory output will increase production to a half-million electric vehicles in 2018. The company expects to deliver about 100,000 vehicles this year.

Musk has told investors the company is focused on Model 3 production and expects to eventually build 10,000 cars a week. The manufacturing will become highly automated, but Musk told investors during the early ramp up he expected high overtime costs.

He also joked to employees they would be going through “production hell” to meet demand for the new car. The company said recently a manufacturing bottleneck caused it to fall far short of its goal to produce 1,500 Model 3s in the quarter.

The company has also started to cut some former SolarCity operations, which were acquired by Tesla last year. In August, Tesla told state regulators it would layoff 63 workers in Roseville, including sales and administrative staff. Tesla lost $336 million in the second quarter.

This week’s dismissals have not been reported to the state Employment Development Department, a spokeswoman said. The state generally requires companies to report layoffs of more than 50 employees in a 30-day period.

Tesla said the performance-based departures were not considered layoffs and not subject to state notifications. It also said the moves have generally boosted worker morale, as high-performing employees have been rewarded.

The clean energy company — maker of luxury electric vehicles, battery storage and solar roofs — has failed to post an annual profit even as its stock has soared on promises of revolutionary products. About 450,000 customers have placed $1,000 deposits for the Model 3.

Tesla has faced ongoing discontent from some factory workers, who have complained about work conditions and wages below the auto industry average.

Tesla has a hearing before the National Labor Relations Board in November for charges that company supervisors and security guards harassed workers distributing union literature. Tesla denied the accusations.

Openly pro-union workers were among those fired this week. Some believe they were targeted.

The company denied union activities played a role in the dismissals.

Michael Harley, managing editor at Kelley Blue Book and Autotrader, thought the dismissals could be an effort to improve vehicle production.

“It’s no secret that Tesla’s Model 3 development and ramp-up for production has been derailed,” Harley said. “A major change in staff – whether dismissal or layoff – is an indication that there is an upper level movement to put the train back on the tracks.”

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