Elon Musk turns back to his playbook as Tesla plans job cuts

Chief executive's warning has surprised some analysts and industry watchers who have marvelled at Tesla’s record-breaking deliveries

Elon Musk at Tesla's Shanghai factory. In recent weeks, Mr Musk has praised Tesla employees in China for 'burning the 3am oil' while criticising Americans who he described as 'trying to avoid going to work at all'. APShow less

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

The chief executive wrote in an email to employees that Tesla plans to cut its “overstaffed” salaried workforce by 10 per cent, 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 marvelled at Tesla’s record-breaking deliveries even as it deals with shortages of critical parts.

Shares of the company sank 9.2 per cent on Friday — the steepest drop in five weeks — as investors digested Mr Musk’s bearish take.

Last month, the chief executive crowed about a second AI Day to show off 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, Texas, and Berlin, where it expects to steadily increase production this year.

Tesla's global staff has ballooned to about 100,000 employees, and the number of hourly workers installing battery packs and solar roofs is expected to continue to grow. But Mr Musk appears to be reaching back into his start-up 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 in 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 Mr Musk termed a “production hell” for the debut of its Model 3 sedan. A year later, the company dismissed 9 per cent of its employees as it struggled to increase output.

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

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

A Tesla Road exit sign on the Toll 130 motorway points to the new Gigafactory in Austin, Texas. AFP

Workers set up for the grand opening party at the new Tesla Giga Texas plant in Austin, Texas. AFP

Tesla's unveiling of the new factory in Austin has highlighted corporate America's growing affinity for Texas, compared with California and other states that are considered to be less tax-friendly. AFP

The parking lot at Tesla's Austin factory is packed with employees' cars. Bloomberg

The construction site of the Tesla Gigafactory in Austin, Texas, in October 2021. Reuters

A closer look at the construction site of the Tesla Gigafactory in Austin, Texas. Reuters

Elon Musk speaks at the South by Southwest Interactive festival in Austin, Texas. Reuters

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

Mr Musk and chief financial officer 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 chief executive is known as a hard worker who puts his job before everything else — and who has little tolerance for what he sees as sloth.

In recent weeks, Mr 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 the coronavirus.

He lauded Chinese workers for “burning the 3am oil” while criticising 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,” Mr Musk wrote in an email titled 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.”