When tech talent is let go, it can be difficult for a company to lure those skills back without paying a high price. If Tesla does see another “phase of growth” will it be able to attract enough talent to meet the demand or will egos still be bruised?
On April 13th, Tesla CEO Elon Musk posted on his social media platform X that his artificial intelligence startup xAI is hiring designers, engineers, product, data, infra, and AI tutors. That’s the good news.
The bad news is Musk has had to make the dreaded decision to let go of at least 10% of Tesla’s global workforce. That nugget of news was not posted on social media but rather by the CEO in an internal email (reportedly at midnight California time on 15 April).
Most Tesla workers in California were probably snug in their beds when the email went out. They probably didn’t get a chance to digest the news until breakfast. That is if they didn’t wake from mobile pings from night owl colleagues messaging the news.
So why is Tesla laying off so many people?
The company, which employed over 140,000 people at the end of 2023, could see upwards of 14,000 positions eliminated. Tesla senior management is aiming to streamline operations and boost efficiency as it prepares for its “next phase of growth.” Choosing the word “growth” is arguably counterintuitive given the layoffs and declines in sales. The reality seems to point to the fact that people are not making the switch to electric vehicles quick enough.
Tesla’s workforce saw significant growth in recent years. After a brief dip in 2019, the company ended 2022 with over 127,800 employees – a staggering increase. This expansion reflected the excitement over the booming electric vehicle (EV) industry.
This at the time growth aligned with Tesla’s production ramp-up. In the fourth quarter of 2022 alone, they produced nearly 439,700 vehicles, according to Statista. The global EV market was expected to reach nearly $1.4 trillion in revenue by 2026, but those figures are just that, numbers, and in 2024, not sales.
Which Tesla sites could get hit the hardest by the layoffs?
While we wait for more clarity on which Tesla sites could see jobs go, one bet is on Tesla’s Gigafactory 1, built near Reno, Nevada in 2016. That was the year hiring took off. Sources have told Reuters some staff in California and Texas have already been notified of layoffs.
Two years on Tesla started to build its Shanghai factory in 2018. In December, it was reported that the site was to be expanded and become the home of a new $25,000 vehicle. This could be a new cost-of-living crisis solution to the recent slump in electric car sales. At the time of writing, there were only reported rumours of job cuts in China.
Tesla later secured final environmental approval for its Berlin Gigafactory in March 2022, so it could start its Model Y production. Eco protestors set against the Tesla Berlin site expansion may have to come down from their nearby forest treehouses sooner than expected if production slows in Germany, too.
Will contractors fill the talent gap when the growth returns?
Musk has gone hot and cold when it comes to contractors. In 2018 in an internal email, he wrote, according to a copy obtained by Electrek:
“I have been disappointed to discover how many contractor companies are interwoven throughout Tesla. Often, it is like a Russian nesting doll of contractor, subcontractor, sub-subcontractor, etc. before you finally find someone doing actual work. This means a lot of middle-managers adding cost but not doing anything obviously useful. Also, many contracts are essentially open time & materials, not fixed price and duration, which creates an incentive to turn molehills into mountains, as they never want to end the money train.
There is a very wide range of contractor performance, from excellent to worse than a drunken sloth. All contracting companies should consider the coming week to be a final opportunity to demonstrate excellence. Any that fail to meet the Tesla standard of excellence will have their contracts ended on Monday.”
Fast forward to 2024 and Musk is justifying mass layoffs as a necessary step to “be lean, innovative and hungry” for the upcoming growth period. He cited the need to reduce “duplication of roles and job functions” created by Tesla’s rapid expansion.
These cuts follow a series of moves by Tesla that have hinted at potential workforce reductions. In recent months, the company reportedly paused stock rewards for some employees, cancelled annual reviews, and identified critical team members, possibly foreshadowing the layoffs.
News of the layoffs sent has made investors jittery. Tesla shares were down 2% in pre-market trading on Monday. The company is also expected to reduce production shifts for its much-anticipated Cybertruck.
While Tesla claims these layoffs position them for future growth, the significant workforce reduction raises questions about the immediate impact on impacted employees and the long-term health of the company amidst a potentially changing EV market landscape. When or if Tesla’s next phase of future growth does come around, will the let-go talent be confident enough about their future with Musk to come back?
Will Tesla’s Board keep true blue to Musk?
Commentators such as The Informations’ Martin Peers are poking the bear. Peers sees Tesla’s sinking stock is a wake-up call for Musk. Investors, as Steve LeVine noted in The Electric, are questioning Tesla’s dependence on him. Peers cites the example of Jeff Bezos who stepped down from Amazon to focus on Blue Origin. Is it time for Musk to take a similar “smart exit strategy”? Musk, however, seems unlikely to leave voluntarily. He is arguably emotionally attached to every business and justifies being a prolific CEO. The onus could now fall on the board, whose close ties to Musk make decisive action almost improbable, according to Peers. However, if it is Musk, who decides to step aside, he will always have the power of his X posts to voice his take on all things Tesla.
Business Insider published the full memo Elon Musk sent Tesla employees at midnight Sunday, California time:
Over the years, we have grown rapidly with multiple factories scaling around the globe. With this rapid growth there has been duplication of roles and job functions in certain areas. As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity.
As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally. There is nothing I hate more, but it must be done. This will enable us to be lean, innovative and hungry for the next growth phase cycle.
I would like to thank everyone who is departing Tesla for their hard work over the years. I’m deeply grateful for your many contributions to our mission and we wish you well in your future opportunities. It is very difficult to say goodbye.
For those remaining, I would like to thank you in advance for the difficult job that remains ahead. We are developing some of the most revolutionary technologies in auto, energy and artificial intelligence. As we prepare the company for the next phase of growth, your resolve will make a huge difference in getting us there.
Thanks,
Elon
