Electric automaker Tesla has informed employees of its next phase of corporate restructuring, namely a 9 percent reduction in workforce, primarily impacting salaried positions.

In an email sent to all employees, CEO Elon Musk reiterated that there had been some duplication of roles and job functions in salaried positions as the automaker attempted to ramp-up volume production levels. Tesla's Announced Job Action

According to the letter sent and later Tweeted by Musk, no production personnel were impacted in the current headcount reduction action. Musk indicated that this action was necessary to reduce costs and become profitable.  Further noted was that this latest action would not affect the ability to meet Tesla Model 3 volume production targets in the coming months.

 

 

 

Supply Chain Matters Thoughts and Perspectives

This latest development obviously provides a sting to Tesla employees who have been continuously called upon to perform extraordinary tasks and dedicate long hours in order to support current new model product development efforts, production process glitches and extraordinary volume ramps.

As many in business and social media have pointed out, despite the external veneer, the company was seriously approaching a cash crisis, and for various reasons, was reluctant to seek yet another round of debt or equity financing.

The Build Up

There have been multiple signs of ongoing glitches and building pressures and concerns related to internal manufacturing and supply network processes:

In late May, Supply Chain Matters highlighted that investment and equity circles had become much more concerned with Tesla after a series of cascading events. They included a disclosure that Moody’s Investor Services had downgraded a previous $1.8 billion August unsecured debt offering by one notch, attributed to persistent negative cash flow and continued production ramp-up challenges with the Model 3 sedan.

In April, both BuzzFeed and The Wall Street Journal reported that Tesla has informed employees that the auto manufacturer has suspended production for a period of 4-5 days to make needed production or supply chain modifications. According to the Buzzfeed report, the announcement of the production pause came with little warning, citing current Tesla employees.

In mid-April, Musk finally acknowledged that the goal for excessive automation of Model 3 sedan assembly was likely a mistake. Musk tweeted on April 13th: “Yes, excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated.

In late May we called attention to a published Reuters report indicating the extraordinary action of loading-up six planes with new robots and manufacturing automation equipment and flew this equipment from Europe to California to reportedly address continued production glitches in the high-volume production of battery components. The article indicated:

Transporting equipment for a production line by air is costly and hardly ever done in the automotive industry, and the move underscores Tesla Chief Executive Elon Musk’s urgency to get a grip on manufacturing problems that have hobbled the launch of the high-volume Model 3 and pushed Tesla’s finances deep into the red.

And in early June, Business Insider as well as business network CNBC echoed a report citing internal documents that reportedly revealed that Model 3 production was still a nightmare and that the automaker was blowing through an insane amount of raw material and cash.

Moving Forward

This week’s announcement of headcount reductions and the re-iteration that the Model 3 production cadence of 5000 vehicles per week will be met this month, will likely please Wall Street interests. From our lens, there is little question that more operational and supply network challenges remain for Tesla before the current crisis subsides.

The implication is that Tesla’s new management structure will continue to have a high dependency on existing employees, and in various degrees of talent and expertise to rally and address the ongoing challenges.

This week’s layoff action is an effort to address the financial challenge. From our lens, the electric automaker must turn its attention and re-double efforts toward warding-off a potential talent drain.

Bob Ferrari

© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.