Tesla slashes retail employee compensation, seemingly pushing them out instead of layoffs

Tesla is cutting employee bonuses – resulting in a significant decrease in overall compensation for many retail employees.

Some Tesla employees are suspicious of the move ahead of seemingly imminent layoffs.

Earlier this week, Tesla launched the long-promised $35,000 version of the Model 3.

CEO Elon Musk said that they plan to make that price viable by moving all sales online only, closing stores, and reducing retail headcount.

But while the company has yet to lay off employees, Electrek has now learned from Tesla employees that the automaker has stopped all bonuses for retail staff.

According to some Tesla employees talking to Electrek, those bonuses represented the majority of the overall compensation of many retail workers.

It enabled some of the top owner advisors to make a salary in the six figure range.

Now that Tesla is transitioning to online sales, the company is removing all commission for retail employees even though they are seemingly still going to handle sales throughout the transition period.

Some employees have told Electrek that they believe Tesla is slashing their compensation in an attempt to push them out during the transition before layoffs to avoid having to pay severance.

We asked Tesla about the situation, but the company declined to comment.

In an email sent to employees and obtained by Electrek, Tesla CEO Elon Musk explained the reasoning behind going to online sales:

“Last year, 78% of all Model 3 orders were placed online, rather than in a store, and 82% of customers bought their Model 3 without ever having a test drive.”

Note that Musk is only talking about the Model 3, which wasn’t in all stores and had a limited test drive fleet throughout most of 2018. He didn’t mention anything about Model S and Model X sales.  This metric also doesn’t account for customers who were first exposed to Tesla via stores, then chose to go home and order online after having conversations with Tesla’s retail team.

Instead of employees doing customer test drives and handling sales, Musk says that sales will be done online and customers will be able to return the car within a week if they are not satisfied.

He wrote in the email to employees:

“Customers can now buy a Tesla in North America via their phone in about 1 minute, and that capability will soon be extended worldwide. We are also making it much easier tot ry out and return a Tesla without a test drive. You can now return a car within 7 days or 1,000 miles for a full refund. Consumers are becoming increasingly comfortable making purchases online, and that is especially true for Tesla – which is a testament to the products we make.”

He added:

“As a result, over the next few months, we will be winding down many of our stores and significantly reducing our spend on sales and marketing, which will help make the price changes we’ve announced today possible. Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower by about 6% on average, allowing us to achieve the $35,000 Model 3 price point.”

Musk explained what it will all mean for Tesla retail employees:

“Unfortunately, this means that some jobs will be impacted or transitioned to other areas of the business. This is a hard decision, but it [is] necessary to make our cars more affordable. Our sales team has fought on the front lines of advancing our mission and has been our connection to hundreds of thousands of customers along the way. I want to express my sincere gratitude for all that you’ve done.

In the coming weeks, we will be evaluating all areas of our sales and marketing organization to understand where there are operational efficiencies, and how best to support the transition to online sales, while also continuing to deliver a truly awesome and educational Tesla buying experience.”

The CEO said that more details about the transition will soon be released.

Electrek’s Take

If Tesla is really trying to avoid paying severance by pushing employees out through the transition, that’s really disappointing. It’s usual corporate greed behavior that I wouldn’t expect from Tesla.

But on an even higher level, the timing of all this seems wrong.

Tesla already implemented price reductions that appear to be linked to moving sales online, closing stores, and reducing headcounts.

Yet, Elon makes it sounds like they are just now launching a review of their sales to evaluate “all areas of our sales and marketing organization to understand where there are operational efficiencies.”

Shouldn’t they have done that before changing prices? Do they really know what kind of impact it will have on cost and also on sales?

I can get how moving all sales online doesn’t have that big of an impact on Model 3, but what about Model S and Model X? Why didn’t he include the stats for those cars? Stores all had decent display and test drive Model S and Model X fleet throughout 2018. I think it would have been more valuable information for the time period.

Particularly considering that those products are more mature, and Model 3 is still in the “new product excitement” category where the earlier adopters, who would be more likely to order online without a test drive, still make up a large percentage of buyers.

Let’s do a quick informal survey.

If you are an Electrek reader who bought a Model S, Model X or Model 3 over the last year, did you buy your car online or through a store:

Did you do a test drive before ordering your Tesla?

Now don’t get me wrong, no one is happier than me that Tesla managed to finally deliver the $35,000 Model 3. I just wished that they would have delivered it through production and cost efficiency improvements. We discussed this in more details in our last podcast episode.

One thing is sure, this whole transition seemed rushed.

What do you think? Let us know in the comment section below.