Tech

Tesla slashed Model S and X staff in recent layoffs

Key Points
  • Details about Tesla's restructuring emerged after the company announced a 7 percent workforce reduction on Friday-- its second round of layoffs in just seven months.
  • Tesla is asking laid-off employees to cooperate in any claims against or by the company, and to adhere to a strict non-disparagement agreement, according to documents attained by CNBC.
  • Shares in the electric car company have dropped about 20 percent since Tesla CEO Elon Musk announced the layoffs, and warned of declining profitability through the first quarter of 2019.
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New details are emerging about Tesla's second round of layoffs in just seven months.

Deep cuts occurred in its sales, delivery and Model S and Model X production teams, according to current and newly laid off workers. These people also said that Tesla has suspended night time production of its Model S sedans and Model X SUVs at its Fremont, California car plant.

According to a separation agreement obtained by CNBC, salaried Tesla employees whose roles were terminated will receive a minimum of 60 days of pay and benefits, regardless of whether or not they sign the agreement. Those who sign can also get some of their COBRA healthcare paid for by Tesla after their coverage ends in March, with additional severance pay depending on the amount of time they worked for the electric vehicle maker.

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Laid off employees must accept or reject their severance package from Tesla within seven days of receiving it, with many getting their "pink slip" on Saturday.

Two dismissed employees said layoffs resulted in their losing stock options they were promised but had not vested yet. They scored the options as part of seemingly lucrative bonuses during their tenure at Tesla, but were disappointed the shares were worth hundreds instead of thousands of dollars due to the layoffs and vesting schedules.

Two other former employees, dismissed in a prior round of layoffs, described the same impact to their income from bonuses, too.

These people noted that full-time equivalent hourly workers let go by Tesla received different packages, and in the recent layoff, some were only granted two weeks' pay.

Which groups were affected

According to an ex-employee who was involved in Tesla's delivery operations, and a current employee who works for Tesla in Fremont, the layoffs appear to have impacted workers across every department and region from factory workers to recruiters and receptionists. But deep cuts apparently hit Tesla's delivery, sales and Model S and X production teams.

Laid off workers from the company's battery plant near Reno, Nevada, and car plant in Fremont, California, as well as one of its delivery centers, say they were walked out by security or by their managers on Friday, some after working a full shift.

At least a half-dozen security professionals were let go from "GF1," in a continued re-configuration of that department following the departure of Jeff Jones last year.

A current Tesla employee in Fremont said that Model 3 production staff and software engineers seemed least likely to be cut. This person also said that in recent weeks, Tesla moved a handful of workers from the group that makes Model S sedans and Model X SUVs in Fremont into new shifts, or new positions involved in Model 3 production or logistics.

As part of its restructuring and cost-cutting measures, Tesla eliminated nighttime production of Model S and X vehicles, according to a laid off employee familiar with the matter. The company let go of at least a half-dozen maintenance techs on the night shift there, and moved others into a day shift, this person said.

A Deutsche Bank analyst, Emmanuel Rosner, wrote in a note to investors on Friday: "We think the job cuts are mostly driven by efficiency gains in manufacturing and continued opex discipline to ultimately enable profitability on the entry level Model 3."

A former Tesla engineer agreed that the company made significant improvements to its Model 3 production process in recent months. But Tesla has long debated whether or not it should "sunset" either the Model S or X, or move production of these vehicles out of the crowded Fremont factory, this person added, noting there is no "upgrade" team in place to refresh either the S or X yet.

A Tesla spokesperson said:

"We recently announced that we are no longer taking orders for the 75 kWh version of Model S and X in order to streamline production and provide even more differentiation with Model 3. As a result of this change and because of improving efficiencies in our production lines, we have reduced Model S and X production hours accordingly. At the same time, these changes, along with continuing improvements, give us the flexibility to increase our production capacity in the future as needed. We'll be providing more details on our earnings call next week."

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A current employee said that Fremont factory workers were in the dark about the company's broader strategy, but felt it was clear Tesla wouldn't be able to cut costs massively, or cram a new Model Y line inside of that plant while also making the same volume of S, X and Model 3's there.

Tesla said it has no plans to sunset the S or X lines.

Separation agreement details

Among other things, Tesla asked laid off employees via separation agreements to:

  • Promise not to "disparage Tesla" including the company's officers, directors, employees, shareholders, agents, affiliates, subsidiaries, and products in any way that's "Likely to be harmful to them or their business, business reputation or personal reputation."
  • Refrain from sharing details about their separation agreement with the public, or with other current or former Tesla employees and contractors.
  • Cooperate with Tesla in connection to claims against or by the company-- this means laid off employees would share names or correspondence with Tesla if called on, and appear in court or be deposed without the company issuing a subpoena.
  • Resolve disputes around the separation agreement through arbitration, instead of in a class action suit for example.

Friday's move marked the second time in seven months that Tesla dismissed thousands of its full-time employees, outside of regular performance review-related terminations. It laid off about 9 percent of its employees in June 2018 in a separate restructuring. In an e-mail to all employees at that time, CEO Elon Musk said: "We are making this hard decision now so that we never have to do this again."

Tesla also dismissed a number of employees in the final months of 2018, following its annual performance reviews, according to three people who worked for Tesla at that time.

Current employees said that performance reviews for many full-time employees started in November 2018, but reviews of associates were now underway, and they expected additional terminations to follow the layoff.

Since the layoffs announcement Friday ahead of trading, Tesla's stock has declined about 20 percent.

WATCH: Tesla shares fall after layoff announcement.

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