Musk's dream of a robo-taxi has thrown Tesla into chaos

Tesla's share price is slipping, cheaper electric cars are being relegated to the back burner, and the CEO is angering employees with the largest layoffs yet.

Bloomberg reporting by Edward Rudlow and Dana Hull on April 21, 2024

Elon Musk's subordinates at Tesla are used to chaos. His biographers describe his intense emotions as "devilish patterns".

Under the Worker Adjustment and Retraining Notice Act, in the United States, companies with more than 100 employees are required to provide a pre-determined minimum severance pay if they make a collective layoff with less than 60 days' notice. Now, Tesla admits that the severance pay offered to some of the terminated employees was "incorrectly low."

However, even by Tesla's standards, this year has not been a quiet one. Tesla's stock price has slipped by more than 40% due to declining sales, confusing product decisions, and more price cuts. Its once-dominant position in China's electric vehicle market is now also taking a hit. Indian Prime Minister Narendra Modi's visit to announce an expected investment was cancelled at the last minute. At the same time, Tesla's board of directors also tried to restart a plan to pay $56 billion to Musk, which was declared invalid by a judge in January, on the grounds that the directors acted as "slaves" to the CEO.

On Tuesday, Tesla is expected to report a 40% plunge in operating profit and its first revenue decline in four years. Musk has ordered the largest layoffs in the company's history and pinned the company's future on the concept of a next-generation self-driving car called a robo-taxi. People familiar with Musk's directives, who asked not to be identified when discussing internal discussions, are uneasy about the changes the CEO wants to push.

The idea of creating a robotaxi service has been in the works for at least eight years at Tesla, but the company has yet to build much of the infrastructure needed and has not received regulatory approval to test such cars on public roads. For now, Musk has put his $25,000 mass-market car plan on hold for now, while many Tesla investors and some insiders are pushing for the plan and believe it is crucial for the future of the automaker.

Key executives, including Drew Baglino, a 18-year veteran of Tesla who led Tesla's powertrain engineering and energy business, left after media reported Tesla's strategic shift.

Musk, 52, has led Tesla out of trouble several times in the past. The company's market capitalization of $469 billion is still more than nine times that of General Motors or Ford Motor Company. But after losing nearly $350 billion in market value in four months, employees, investors and analysts alike were confused and cast doubt on the company's strategy.

"The stock will need to undergo a potentially painful transformation of its ownership base, and investors who previously focused on Tesla's EV sales and cost advantages may abandon their investments," Deutsche Bank analyst Emmanuel Rosner said last week, downgrading Tesla's stock rating from buy and lowering his price target by more than a third.

Musk said on his social media network that the recent move amounts to the launch of a wartime CEO model. He liked one such post after sending a company-wide email announcing that Tesla would lay off more than 10 percent of its global workforce, meaning at least 14,000 jobs would be eliminated.

According to people familiar with the company's plans, the actual layoffs could exceed 20,000. According to a person with direct knowledge of Musk's directives, Musk's reasoning is that Tesla should lay off 20% of its workforce, as Tesla's car deliveries fell by 20% from the fourth quarter to the first quarter.

For those employees who are still in Tesla's ranks after this layoff, Musk has completely changed the military order. He announced last week that the company would be "all-in on autonomous driving." Robo-taxis now take precedence over the low-cost cars he first teased four years ago, both in terms of developing a timeline for prototypes and in scheduling capacity, a person familiar with planning said.

For more than a decade, Musk has been talking about self-driving and convincing customers to spend thousands of dollars on Tesla's pitched Full Self-Driving (FSD) product. The name doesn't live up to its name, as fully autonomous driving requires constant supervision and doesn't make the vehicle autonomous, but Musk has repeatedly predicted that it is close to meeting the brand's requirements. "I'm the boy who cried and said full self-driving," he said in July.

Musk and senior engineers are particularly bullish on a major change in the way fully autonomous driving operates. Instead of relying on software code, cameras placed around the company's cars are taking video and using that footage to decide how the car is driven. Tesla's head of self-driving programs, Ashok Eluswamy, wrote on X last month that this should lead to "unprecedented progress."

But optimism around full self-driving and Musk's belief that this new approach could lead to robotic axes is clouding the future of Tesla's $25,000 car project. People with knowledge of Tesla's plans have questioned claims that the project has been canceled entirely. All the while, the company was looking for a low-cost vehicle architecture that would support several different types of models, one of which would have no steering wheel or pedals.

While these individuals confirmed that robo-taxis were a priority project, one of them described the next-generation car project as an effort to reduce the cost of components and production methods, and then apply those innovations to inexpensive iterations of the company's two most popular electric vehicles, Model Y and Model 3. In particular, the team focused on realizing these cost savings on last year's best-selling model, the Model Y, the world's best-selling model.

There have been reports that Tesla's response to affordable models such as the Toyota Corolla has been canceled entirely, and it's unclear how much comfort this will be for investors. Many fear that the only new model the company will offer to consumers in the 50 years following the launch of the Model Y will be the Cybertruck, an expensive pickup truck that is difficult to manufacture. Last week, the company recalled nearly 3,900 trucks that had been sold to fix faulty gas pedals.

Steve Mann, an analyst at Bloomberg Intelligence, said: "Investors, especially institutional investors, are losing patience. The initial hype around fully autonomous driving and robotic axes has waned, and the pendulum has swung in the opposite direction. "

Adjusting Tesla's orientation around the robot's axis is obviously risky. While federal agencies have taken a laissez-faire regulatory approach to technologies that have the potential to make roads safer, scrutiny at the state and local levels has proven difficult to navigate.

Former Gov. Doug Doucy welcomed Uber Tech "with open arms and wide roads" in 2016. Two years later, Uber sold its self-driving car division.

Recently, GM's Cruise spent six months restarting robo-taxi testing after one of its cars crashed and dragged a pedestrian in San Francisco. After several accidents, including a car hitting a cyclist, California has also hampered the expansion of Waymo, a subsidiary of Alphabet.

Still, Musk is betting that Tesla could make robo-taxis a reality by offering full self-driving to more consumers and lowering prices. He's pushing for a test drive and a 30-day free trial to promote the feature, boost revenue, and capture more of the camera footage.

Tesla is building data centers in Buffalo, New York, and Austin, where it is headquartered, to process video captured by vehicles and train driving systems. People familiar with the projects say that the Buffalo project is progressing faster, while the Austin project is struggling with cost overruns.

A person with direct knowledge of Tesla's layoffs said the reason for Tesla's layoffs was not to save money from various parts of the company, but to redirect the expenses to the robot axes. Teams across the company, including those engaged in independent research and development, have been given equal layoff targets, the person said.

According to interviews with more than a dozen affected employees across the United States, these dismissals were poorly organized and executed.

Emails starting with "Dear Employees" were sent to personal addresses after midnight. At Tesla's battery factory in Nevada, many employees were at an impasse at the gates at the start of Monday. They were shunted to a parking lot, where security guards scanned badges to tell who was still working and who had been fired. One person who learned of his dismissal in this way said it was the most callous and humiliating experience of their careers.

Jordana Hernandez, a former service manager in Virginia, wrote on LinkedIn: "A lot of people find out they've been fired on their way to work, or after what they thought was another Monday of work. "That's the painful part. Blood, sweat and tears for a company with zero human care for its employees, who have made sacrifices that no one other than Tesla can imagine.

On the Saturday night before the layoffs began, Musk struck an exaggerated pose on the red carpet and joked about who should play him in the upcoming biopic.

Days later, Tesla Chairman Robin Denholm criticized a Delaware court for rejecting the board's compensation package for Musk and urged shareholders to reapsee it. Around this time, the CEO learned that the company had been stingy in the treatment it offered to employees who had just been laid off.

In an email to Tesla's remaining employees, Musk wrote: "I just noticed today that some of the severance payments are underpaid. "I apologize for the mistake. We will rectify it immediately. "