Tesla Fremont Factory Layoffs: Electric Car Maker Fires 400 for Non-Performance, Adds to Rising Automotive Industry Job Cuts

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When it comes to the automotive industry, Tesla Inc (NASDAQ:TSLA) does everything differently. The company confirmed hundreds of layoffs due to non-performance at both its Palo Alto, California headquarters and its Fremont vehicle production factory. But the carmaker didn’t say how many of its 33,000 employees were given pink slips. Former employees estimated that the number of layoffs was between 400 and 700 workers.

Tesla to Lay Off 400+ Employees After SolarCity Job Cuts

Hundreds of Tesla employees were shown the door following their annual reviews. The electric carmaker fired hundreds of workers, including factory workers, engineers, and managers. That represents upwards of two percent of the company’s more than 33,000 employees.

The layoffs come at a crucial time for Tesla as it struggles to increase vehicle production and broaden the global footprint for its new “Model 3” sedan. In the last quarter, Tesla produced just 260 of its lower-cost sedan. CEO Elon Musk had predicted Tesla would deliver more than 1,600 of the vehicles by September. Not exactly great news for the 450,000 customers on the wait list.

In an effort to assuage investors, Tesla said the layoffs were a result of a company-wide annual review. In fact, Tesla insists that the firings are not “layoffs.” While some employees were fired, others enjoyed promotions and bonuses.

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“Like all companies, Tesla conducts an annual performance review during which a manager and employee discuss the results that were achieved, as well as how those results were achieved, during the performance period,” a Tesla spokesman said.

“This includes both constructive feedback and recognition of top performers with additional compensation and equity awards, as well as promotions in many cases. As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures.”

According to company management, the departure of hundreds of employees actually improves worker morale. Employees, on the other hand, said the firings have lowered morale, with several saying “Model S,” “Model X,” and former SolarCity Corp (NASDAQ:SCTY) operations were targeted.

There may be more going on at Tesla than meets the eye, though. Workers have been complaining about work conditions and wages. For his part, Musk has argued that workers who say they are underpaid should accept that they could make a bigger stock-based payday down the road.

Until that happens, Tesla has a hearing before the National Labor Relations Board next month to address accusations that company security guards and supervisors harassed workers handing out union literature. Tesla maintains these union activities had nothing to do with the dismissals.

In the second quarter of 2017, Tesla reported second-quarter revenue of $2.79 billion, a 120% increase over the $1.27 billion recorded in the same prior-year period. Automotive revenue grew 93% over the 2016 second quarter.

The company reported a net loss for the period of $336.0 million, or $2.04 per share. In the second quarter of 2016, Tesla reported a loss of $293.0 million, or $2.09 per share.

Excluding stock-based compensation, Tesla lost $1.33 a share, which was narrower than expected.

Automotive Industry Layoffs Continue in October 2017

Management at Tesla might have an encouraging outlook but the same cannot be said for the broader automotive industry. Thanks to tumbling sedan sales, General Motors Company (NYSE:GM) said that it plans to cut back production at its Detroit-Hamtramck assembly plant later this month.

On top of that, GM will temporarily idle the factory for about six weeks starting in mid-November. Roughly 1,500 employees at the plant will lose their jobs. When operations resume, production will be scaled back by 20% and cost 200 additional employees their jobs.

GM, which is the country’s largest automaker, laid off several hundred employees at the Detroit-Hamtramck factory earlier this year after it eliminated evening shift work.

Over the last year, GM has significantly reduced its passenger-car output, which has resulted in nearly 3,000 overall layoffs.

News of the GM layoffs comes just one month after Ford Motor Company (NYSE:F) said it would temporarily shut down production lines at five North American plants for a total of 10 weeks as the company tries to reduce its inventories of weak-selling models.

The affected plants in the U.S. and Mexico build the “Ford Fusion,” “Ford Focus,” “Ford Transit” van, “Lincoln MKZ,” “Lincoln Continental,” and “Ford Mustang.”

Collectively, the five factories employ more than 15,000 employees. Ford did not say how many of these workers would be forced into temporary layoffs.

At the time of the announcement, Ford had 111 days’ worth of unsold Mustangs and a 103 days’ supply of Transit vans. Automakers try to keep inventory at 65 to 70 days.

The automotive slowdown is also trickling down. In August, Cox Automotive (provider of Kelley Blue Book, Xtime, Autotrader.com, Inc., and Manheim, Inc.) announced plans to lay off three percent of its global workforce of 35,000. This would put the total number of layoffs at 1000.

Meanwhile, Advance Auto Parts, Inc. (NYSE:AAP) announced that it either shuffled or eliminated 475 positions in corporate, supply chain, and field management. The job losses come after the Roanoke, Virginia-based company reported two consecutive years of declining sales.

Thanks to changing consumer tastes, GM and Ford have struggled in 2017 with high inventories of sedans. The collateral damage of a saturated market are the employees. Moreover, Ford and GM are looking to take a bite out of the electric car industry, something Tesla is going to fight. All three are vying to be the biggest, best automaker in the U.S. But there isn’t room for all three.

This will undoubtedly lead to more job losses in the automotive industry and specialty retailers in 2017 and 2018.

 

Sources

Tesla fires hundreds after company-wide performance reviews,” The Mercury News, October 13, 2017.

Tesla fires hundreds of employees while trying to ramp up vehicle production,” CNBC, October 13, 2017.

Feds order Tesla to respond to worker confidentiality complaints,” The Mercury News, August 31, 2017.

Tesla Second Quarter 2017 Update,” Tesla Inc, July 28, 2017.

GM to Idle Detroit Car Factory Amid Slow Demand,” The Wall Street Journal, October 12, 2017.

Ford to cut production at five North American vehicle plants,” Reuters, September 19, 2017.

Dealer.com parent company Cox Automotive plans layoffs,” USA Today, August 14, 2017.

Advance Auto confirms layoffs, job shuffling,” The Roanoke Times, June 27, 2017.

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