Tesla Announced Layoffs to Public Before Telling Employees: Report
On Thursday, Tesla announced it will finally begin delivering the Model 3’s long-awaited base trim to the public through direct online sales. By eliminating storefronts, the automaker believes it can reduce costs — helping to get that pesky profit situation under control.
Unfortunately, reports have emerged that claim those employees had no idea their jobs were on the line. Meanwhile, the company’s share price took a hit in the wake of the announcement, causing its stock to drop significantly. Since last Thursday, more than $8 billion disappeared from Tesla’s market capitalization.
Elon Musk described the store closings as a necessary cost-cutting measure to ensure it could offer the $35,000 version of the Model 3. The company also explained it would be able to reduce prices of all its vehicles by an average of 6 percent by shifting sales online, though Musk admitted a few high-traffic stores would remain open as product showrooms.
According to Bloomberg, that was a shock to many. At least three Tesla employees told the outlet they first heard about the probable layoffs when the automaker published a public blog post Thursday afternoon. The situation was made all the more confusing by the fact Tesla spent considerable time and resources attempting to expand its physical dealer network over the last two years. Prior to the announcement, Tesla had begun training employees to sell solar systems and energy storage solutions.
From Bloomberg:
Until last week, Tesla’s store strategy seemed to be one of expansion. The Palo Alto, California-based company opened 27 new retail and service centers last quarter, resulting in 378 locations worldwide, according to its letter to shareholders. It was the most openings for a quarter since mid-2017.
Tesla also suggested a brick-and-mortar retail strategy was important in its annual report filed Feb. 19, just nine days before Musk announced the pivot to online sales.
“Our Tesla stores and galleries are highly visible, premium outlets in major metropolitan markets, some of which combine retail sales and service,” Tesla said in its 10-K filing. “Opening a service center in a new geographic area can increase demand. As a result, we have complemented our store strategy with sales facilities and personnel in service centers to more rapidly expand our retail footprint.”
That doesn’t mesh, making some investors nervous. Alex Chalekian, founder and CEO of Lake Avenue Financial, which manages more than $150 million in client assets, said his company sold all Tesla stock held for advisory clients on Friday.
“This was a total 180-degree turn,” Chalekian, explained. “Tesla had been talking about expanding stores, and all of a sudden, they are closing them. To me, this signals a huge financial concern and a possible cash-flow issue for Tesla.”
[Image: Tesla]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Companies pretty much have to disclose these types of layoffs publicly before telling employees, as it materially affects the stock price. TSLA is particularly vulnerable to this type of news, as evidenced by the market reaction. Nothing to see here, move along now.
The Shorty Ground Force #SGF on Twitter has gone into amazing detail recounting the cash burn and the many interesting things done at TSLA to keep it going.. While I don't have any position in that stock and want to see them succeed, it is....fascinating. Who coulda thought that the traditional car companies actually know something ?