After emailing top managers in his company last week to demand that all employees return to the office, Tesla CEO Elon Musk signalled he wants to cut 10 per cent of his workforce in anticipation of a bad recession.
Musk sent a follow-up email on Thursday telling executives to “pause all hiring worldwide” and said he plans to cull 10 per cent of Tesla’s workforce, according to Reuters, which first obtained a copy of the message. The email was followed by yet another the same day clarifying the firings would target Tesla’s white-collar workforce.
“Tesla will be reducing salaried headcount by 10 per cent as we have become overstaffed in many areas,” Musk said in the email.
Homa Bahrami, senior lecturer and faculty director at the Haas School of Business, UC Berkeley, Calif., said Musk’s initial return-to-office mandate may have been an attempt to more organically trim the Tesla workforce.
Brian Kropp, distinguished vice president with Gartner’s HR practice, agreed with Bahrami, arguing an in-office work edict would have a winnowing effect on the employee base.
At the same time, in an environment where the stock prices of tech companies have fallen dramatically over the past few months, many organisations are watching competitors such as Tesla with an eye on stealing away talent.
“Look, Elon Musk is a very smart guy. There may be 20 per cent or 25 per cent of employees who end up leaving, and maybe those are the ones he wants to leave, but a good chunk of that 25 per cent are in demand at other companies,” Kropp said in an earlier email reply to Computerworld.
On May 25, Gartner polled 350 human resource executives and leaders across a spectrum of industries. Most (66 per cent) indicted their organisations expect to increase business revenue over the next quarter; only four per cent indicated they expect to initiate layoffs.
Sixty-four per cent of those polled said their organisations have no plans to cut staffing, and only 15 per cent indicated they have plans to slow hiring for non-critical roles. Just nine per cent expected to slow hiring for all roles.
Even if the economy falls into a recession, only 31 per cent of HR executives polled said their organisations would slow hiring — and just 11 per cent said their companies would initiate layoffs. In fact, 50 per cent of those polled expect an increase in talent competition in the next six months despite economic headwinds.
Jack Gold, principal analyst with J. Gold Associates, said he does expect some sort of slowdown in economic activity. “We are already seeing it," he said. "And with interest rates climbing, it makes it much more expensive to buy a new car — an EV or gas powered. So, planning for a slowdown is probably the right move.”
But there’s another factor at play. Musk and Tesla initially dominated the EV market, but there has been a sea change with rival firms now challenging it for the top spot.
“There are major competitors — not just startups like Rivian, but also Ford, GM, Hyundai, etc. — that are now pushing their new EVs. That will have an effect on Tesla sales, although it remains to be seen how much in the long term it hurts them,” Gold said.
Tesla is opening major new EV production facilities in China and other countries, and that can have an effect on hiring at corporate as jobs move to new locations, and potentially at lower pay, Gold noted.
“How much of this is part of the equation is hard to judge at this point, but I’d expect it does have some bearing on the hiring decisions,” Gold said. “And while Tesla is doing well in China now, there is a lot of local Chinese competition coming on line. It will be interesting to see if the China mentality of ‘buy from local companies’ hurts Tesla long term.”
Musk will regret his strategy of mandates and layoffs, Lewis said, because he’s betting his employees and their priorities will be vastly different from those in other organisations, “for the simple fact that their desire to work for Tesla outweighs their desire for better work life balance.
“He just essentially launched a massive ad campaign that communicated Tesla is a ‘work-in-office-only’ company, which could prove very problematic for those trying to develop a candidate pipeline for them,” Lewis said.