Tesla must obey the “shelter in place” order put into place in the San Francisco Bay Area and is not allowed to build new cars at its Fremont factory, according to the Alameda County Sheriff’s office.
Tesla will be allowed to maintain “minimum basic operations” at the plant, but this does not include building new cars.
It’s been a confusing two days for Tesla as a “shelter in place” order was put into place in the San Francisco Bay Area due to the COVID-19 pandemic. It looked like they would need to shut down, but Tesla has been acting like they would be able to remain open.
At first, Tesla looked like they would maintain business as usual as they directed employees to continue coming into work, but that employees could “stay home for any reason” if they were feeling sick or were any way uncomfortable.
CEO Elon Musk also stated that he is more worried about “panic than virus itself.” The virus has killed nearly 8,000 people and nearly 200,000 have been infected worldwide. In countries like Italy that have been under complete shutdown for days, there have not been mass riots or deaths due to panic, certainly not in the thousands.
Today, Tesla sent notice to its employees about their policy during the shelter in place order. Tesla stated that since they were “national critical infrastructure,” they would be exempt from any closure orders and employees related to factory production, deliveries, and service should continue to work. All other employees were told to work from home until further notice.
Tesla said they had been in close contact with the state, county, and city over this decision.
But tonight, Alameda County Sheriff’s Office contradicted Tesla’s claim. They state:
Tesla is not an essential business as defined in the Alameda County Health Order. Tesla can maintain minimum basic operations per the Alameda County Health Order.
Minimum basic operations is a phrase defined in section 10(g) of the Alameda County Health order. Here is the relevant section:
g. For the purposes of this Order, ‘Minimum Basic Operations’ include the following, provided that employees comply with Social Distancing Requirements as defined this Section, to the extent possible, while carrying out such operations:
i. The minimum necessary activities to maintain the value of the business’s inventory, ensure security, process payroll and employee benefits, or for related functions.
ii. The minimum necessary activities to facilitate employees of the business being able to continue to work remotely from their residences.
This means that Tesla will not be able to build new cars in the Fremont factory (unless, of course, someone’s story changes tomorrow… again).
The shutdown comes right as Tesla’s quarter is ending, which is often when the company does a big final push to break last quarter’s delivery record. The quarter ends in two weeks on March 31, before the shelter in place order expires on April 7.
For many quarters, Tesla has maintained a back-loaded quarterly delivery schedule where they deliver more cars at the end of the quarter than the beginning. The factory batches production for overseas deliveries at the beginning of the quarter, then does local production near the end.
These plans result in big surges of deliveries at the end of the quarter worldwide, which we would be in the midst of right now, were it not for various health shutdowns. Last quarter, even Musk himself got involved delivering cars at the Fremont factory.
Tesla has also just started Model Y deliveries, with more scheduled before the end of the quarter. These are likely to be impacted, at least in the Bay Area, and perhaps outside of Tesla’s home turf if quarantine orders spread to elsewhere.
Several other companies (including Tesla in Shanghai) have had their EV factory plans paused by the virus, which we’re keeping track of here. Head over and have a look for a rundown of what’s happening in EV manufacturing.
This seems like a tough situation and bad timing for Tesla, and it is. But it could have been avoided, and Tesla needs to realize that they’ve made a mistake by not planning ahead. When you batch your operations like this, you open yourself up to disruptions that are more painful than they need to be.
And Tesla even knows this, and has stated it before. Previously, Tesla has said that they would work to “fill the pipeline” so as to reduce this backloaded nature of quarterly deliveries in order to make operations more efficient and predictable. But the last time they said that was years ago, and they seem to have given up on the idea, as every quarter the big delivery push comes back.
Tesla does this because if they didn’t, they’d likely have a “down quarter” where deliveries don’t beat the previous quarter’s records. This would result in people calling the company’s growth into question, even if it was a prudent business decision to fill the pipeline. We all know that everything about Tesla is scrutinized much more than other companies.
This batching results in inefficient business operations where employees have little to do at the beginning of a quarter and are overworked at the end. It also means that employees can’t specialize in a role — sales and service employees get pulled over to delivery at the end of quarter, and delivery people get pushed to sales in the beginning.
It also leads to rash decisions like big layoffs at the beginning of a quarter right after employees worked hard to beat delivery records just weeks prior.
Tesla has even had a few chances to get off of this schedule before — last year, there were a few quarters where Tesla took a loss due to scheduled debt payments, and they could have also taken the pain of filling the pipeline during one of those quarters. Or they could have done it more recently, now that the company’s profitability is relatively assured (save black swan events like this one) and their cash position is strong after a recent $2 billion stock offering.
Tesla can’t take the blame for the virus, but deserves some criticism for their response to it, and the lack of planning that will make this shutdown more painful than it needs to be.
But more than anything, this public safety order exists for a good reason. And Tesla, like everyone else, should obey it.
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