Tesla CEO Elon Musk announced several weeks back that Tesla’s leadership was working on a restructuring plan that would flatten the company hierarchy in an attempt to make the overall company more efficient. Today, he shared his full email to employees on Twitter, which detailed the first of many concrete actions Tesla is taking towards the new hierarchy. The headline heard around the world this week is that Tesla is letting 9% of its employees go. But let’s dig in further.
Difficult, but necessary Tesla reorg underway. My email to the company has already leaked to media. Here it is unfiltered: pic.twitter.com/4LToWoxScx
— Elon Musk (@elonmusk) June 12, 2018
Elon clarified the specifics of the broad staffing cut target by stating that the cuts would not impact any of Tesla’s production associates, with the majority of the cuts coming from Tesla’s salaried workforce. He shared that the cuts were essentially just the trimming of the fat that has accumulated over Tesla’s 15 years of aggressive growth. “Tesla has grown and evolved rapidly over the past several years, which has resulted in some duplication of roles and some job functions that, while they made sense in the past, are difficult to justify today,” the CEO wrote.
To keep his investor base happy, he shared that the cuts would not impact Tesla’s ability to deliver against its committed Model 3 production numbers — though, it’s hard to imagine that such sweeping staffing cuts in so many supporting roles would have no impact. The point is clear nonetheless — the folks making the Model 3 and responsible for the physical assembly of it will continue to be Tesla employees.
Job cuts of this magnitude are never fun, but they seem to be an inescapable part of a rapidly growing company. The pendulum of growth ebbs and flows and this is seemingly a necessary course correction. Elon noted that the decision was made in support of achieving sustainable profitability, which is something Tesla has never achieved in its 15 years, largely due to its aggressive use of capital that is driven by its unimaginable year-over-year growth and expanding scope of work.
The Tesla Model S and Model X are already highly profitable by themselves, and it seems the Model 3 will be once Tesla reaches 5,000 units/week, but the goal is to trim the corporate fat to make the company profitable.
Elon added that it was his belief that this was a one-time restructuring. “We are making this hard decision now so that we never have to do this again.” That is a bold statement for a man know for his unquenchable thirst for change and expansion, but it’s great to see the idealism in his vision at the same time. I’d take this as another “Elon Time” statement that must be tempered against the unknowns of the future.
Elon also used the opportunity to snip off Tesla’s sales agreement with Home Depot, which had Tesla employees selling Tesla’s solar and energy storage products inside of 800 Home Depot stores across the US. The majority of these employees would be offered the opportunity to switch over to one of Tesla’s retail locations, Elon noted.
The relationship with Home Depot was still in its infancy, having only been launched earlier this year as a means of innovating beyond the door-to-door sales approach used by SolarCity, which Tesla acquired.
Staffing cuts and company reorganizations are best done quickly, like ripping off a band-aid. That’s not to say that they should be executed recklessly, but leaving employees lingering in limbo for weeks or months with the tension of not knowing whether or not they will be an employee when the dust settles is counterproductive on every level. Elon shared that Tesla’s leadership evaluated the criticality and effectiveness of each position, drilling down to the “specific skills and abilities of each individual in the company” in order to decide which roles and which employees should be cut. Affected employees would learn about any decisions this week, after which, employees separating from Tesla would be offered “significant salary and stock vesting (proportionate to length of service) to those we are letting go.”
Tesla has a tense relationship with its employees, historically offering low hourly wages that are offset by generous stock incentives. Stock incentives don’t help month to month, but with the growth of Tesla’s stock over the last few years continuing at such a rapid rate, it has singlehandedly made Tesla’s overall compensation package one of the most attractive in the industry.
This is an admittedly difficult proposition for employees, but getting finances in better order is about reinforcing Tesla’s mission, its focus on disrupting the automotive and energy sectors for the betterment of society. With that in mind, Elon closed the note with a call to action centered around Tesla’s mission:
“Tesla has already played a major role in moving the auto industry towards sustainable electric transport and moving the energy industry towards sustainable power generation and storage. We must continue to drive that forward for the good of the world.”
Below is the text of the email in full:
As described previously, we are conducting a comprehensive organizational restructuring across our whole company. Tesla has grown and evolved rapidly over the past several years, which has resulted in some duplication of roles and some job functions that, while they made sense in the past, are difficult to justify today.
As part of this effort, and the need to reduce costs and become profitable, we have made the difficult decision to let go approximately 9% of our colleagues across the company. These cuts were almost entirely made from our salaried population and no production associates were included, so this will not affect our ability to reach Model 3 production targets in the coming months.
Given that Tesla has never made an annual profit in the almost 15 years since we have existed, profit is obviously not what motivates us. What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we can eventually demonstrate that we can be sustainably profitable. That is a valid and fair criticism of Tesla’s history to date.
This week, we are informing those whose roles are impacted by this action. We made these decisions by evaluating the criticality of each position, whether certain jobs could be done more efficiently and productively, and by assessing the specific skills and abilities of each individual in the company. As you know, we are also continuing to flatten our management structure to help us communicate better, eliminate bureaucracy and move faster.
In addition to this company-wide restructuring, we’ve decided not to renew our residential sales agreement with Home Depot in order to focus our efforts on selling solar power in Tesla stores and online. The majority of Tesla employees working at Home Depot will be offered the opportunity to move over to Tesla retail locations.
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. It is very difficult to say goodbye. In order to minimize the impact, Tesla is providing significant salary and stock vesting (proportionate to length of service) to those we are letting go.
To be clear, Tesla will still continue to hire outstanding talent in critical roles as we move forward and there I still a significant need for additional production personnel. I also want to emphasize that we are making this hard decision now so that we never have to do this again.
To those who are departing, thank you for everything you’ve done for Tesla and we wish you well in your future opportunities. To those remaining, I would like to thank you in advance for the difficult job that remains ahead. We are a small company in one of the toughest and most competitive industries on Earth, where just staying alive, let alone growing, is a form of victory (Tesla and Ford remain the only American car companies who haven’t gone bankrupt). Yet, despite our tiny size, Tesla has already played a major role in moving the auto industry towards sustainable electric transport and moving the energy industry towards sustainable power generation and storage. We must continue to drive that forward for the good of the world.