Elon Musk’s two biggest companies have announced massive cuts to their workforces over the past week. Last Friday, SpaceX President Gwynne Shotwell sent an email to employees announcing that the company would lay off approximately 10 percent of its 6,000 employees by March 12. (The company hasn’t disclosed the exact number of people, but estimates range from 700 to 850 people.) This Friday, Musk sent a letter notifying Tesla employees that the company planned to cut 7 percent of its 45,000-person workforce, an estimated 3,150 people.
The companies both attributed the layoffs to impending ordeals. SpaceX’s statement reads, in part, “This action is taken only due to the extraordinarily difficult challenges ahead and would not otherwise be necessary.” Tesla’s statement similarly states that “the road ahead is very difficult” and “we unfortunately have no choice but to reduce full-time employee headcount.”
An official layoff notice required under California’s WARN Act, which was obtained by Business Insider, indicates that almost half of the 577 SpaceX layoffs at its headquarters near Los Angeles consist of technicians and engineers. The California Employment Development Department told Slate that Tesla has not yet submitted an official layoff notice.
Musk indicated in his Friday letter that the Tesla layoffs are intended to help the company reach its 2019 goal of offering a $35,000 Model 3, which is supposed to be the company’s most affordable car. The Model 3 currently sells for $44,000, and it is expected to become more expensive in July, when federal income tax credits for electric vehicles are set to drop by half. “While we have made great progress, our products are still too expensive for most people,” Musk wrote. In 2018, Tesla suffered through both “production hell” and “delivery logistics hell,” as Musk put it, in attempting to meet targets for the Model 3. Yet, Tesla ended posting a profit in Q3 of 2018, the first time it had done so in two years.
The reasons for SpaceX’s staffing cuts are less clear. The company did not attribute the layoffs to any specific goals or challenges in its statements. The Los Angeles Times reports, however, that orders for geostationary satellites, a money-maker for the company, have slowed in recent years. SpaceX told investors in 2015 that it expected to gain a significant revenue stream from Starlink, a forthcoming internet service relying on thousands of satellites, by 2020. However, these plans have reportedly been beset by delays. SpaceX is also aiming to pursue some riskier and more expensive projects in 2019, such as testing its Mars spaceship, which is expected to cost billions. The layoffs are expected to save SpaceX as much as $100 million per year, though the company raised $507 million in investment funding in April and is currently in the midst of another funding round that’s set to raise an additional $500 million.
Musk’s employees are no strangers to high turnover rates. Tesla has claimed in the past that it fires hundreds of people per year for poor performance. It reportedly fired 1,200 people, or 3.6 percent of its global workforce, in October 2017. However, these positions were backfilled. In June 2018, the company laid off 9 percent of its employees in order to reduce costs while accelerating production of the Model 3.
A turbulent employment experience should perhaps be expected while working under a person like Musk. The CEO has had his share of bizarre scandals over the past year. In July, Musk baselessly accused a British diver of being a “pedo” after the diver criticized the CEO for constructing a submarine to save a Thai soccer team from a flooded cave. In September, Musk smoked marijuana during a live podcast recording of The Joe Rogan Experience, which set off a NASA investigation into SpaceX’s culture and safety. And in October, Musk agreed to pay a $20 million fine from the Securities and Exchange Commission for abruptly announcing on Twitter that he had secured funding to take Tesla private—and then deciding not to follow through on the plan.