Elon Musk heaps layoff threat on top of in-office work mandate

After telling top managers to enforce a back-to-office mandate for employees, the Tesla CEO then messaged executives telling them he expects to lay off 10% of his workforce in anticipation of a recession.

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After emailing top managers in his company last week to demand that all employees return to the office, Tesla CEO Elon Musk signaled he wants to cut 10% 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% 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% as we have become overstaffed in many areas,” Musk said in the email.

Peter Hirst, senior associate dean of executive education at MIT's Sloan School of Management, said Musk has a vision of the work environment and culture he wants to create for Tesla.  "There is some logic to that — they are a manufacturing company, some people have to be there to do that; he seems to be saying ... everyone should (be present)," Hirst said. "It’s plausible, and I think it will be attractive to some people who share that view and want to work in an in-person culture and environment."

While the combination of office mandates and layoffs might be off-putting for a significant portion of Tesla's and SpaceX's staff, some workers will, over time, gravitate towards the companies that offer them the conditions they want. It's too early to tell whether Tesla will attract the talent it needs, Hirst said.

"...I am guessing they will not have a problem doing so," he said.

The Tesla brand brings with it a certain amount of clout, and as a result, Musk feels more empowered to make whatever demands he wants, industry analysts said.

David Lewis, CEO of OperationsInc, an HR consulting firm in Connecticut, said when it comes to Elon Musk you need to throw out the book concerning "conventional wisdom around public communication."

"He operates on the basis that he can do what he wants, and he does," Lewis said. "Sharing news of the possibility of 10% layoffs, paired with the proclamation that all work is to happen in-office, suggests a bit of 'evil genius' action here, whereby Musk could be achieving the 10% reduction via attrition — via voluntary quits by those who are off-put by the demand they return to the office."

Still, Lewis said: "It's hard to understand how you maintain a culture people want to be a part of when you shoot from the hip and seemingly are erratic. Yes, they are Tesla. Yes, they are a place people want to say they work. Having said that, there are limits as to what employees will tolerate before they question the value of sticking with a sexy brand versus looking out for their own futures."

Brian Kropp, distinguished vice president with Gartner’s HR practice, agreed with Lewis, 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 organizations 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% or 25% of employees who end up leaving, and maybe those are the ones he wants to leave, but a good chunk of that 25% 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 of them based in North America. Most (66%) indicted their organizations expect to increase business revenue over the next quarter; only 4% indicated they expect to initiate layoffs.

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Sixty-four percent of those polled said their organizations have no plans to cut staffing, and only 15% indicated they have plans to slow hiring for non-critical roles. Just 9% expected to slow hiring for all roles.

Even if the US economy falls into a recession, only 31% of HR executives polled said their organizations would slow hiring — and just 11% said their companies would initiate layoffs. In fact, 50% 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.”

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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.”

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Musk will regret his strategy of mandates and layoffs, according to Lewis. He's betting Tesla employees and their priorities will be vastly different from those in other organizations, “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.

Copyright © 2022 IDG Communications, Inc.

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