Economy

What's at the root of Tesla's labor troubles?

One labor-management expert sees a mismatch between the company's workplace grievances and Elon Musk's proposed solutions

In this Friday, June 22, 2012 file photo, Tesla CEO Elon Musk walks past the Tesla Model S after a news conference at the Tesla factory in Fremont, Calif. Musk on Tuesday.
AP Photo/Paul Sakuma
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As Tesla promises to deliver the cars of tomorrow, it may be inheriting the labor problems of yesterday’s auto industry.

The electric-car company’s workplace practices have been under scrutiny since February 9th, when a Tesla employee named Jose Moran published an essay on Medium describing low pay, long hours, high injury rates, and a punitive workplace culture at the company’s sole factory in Fremont, California.

Employees at the plant, he said, are in contact with the United Auto Workers to discuss unionization. Mr. Moran emphasized that he wanted to help Tesla, not weaken it: “I’m proud to be part of a team that is bringing green cars to the masses.”

In an email to employees Thursday night, Tesla CEO Elon Musk denied these accusations and denounced the UAW, which he said “does not share [Tesla’s] mission and whose true allegiance is to the giant car companies.”

Other US companies, from Nissan to Walmart, have also taken a hard line against unionization. But at Tesla, the story is a bit more complicated. The company is shifting from Silicon Valley startup to large-scale automaker, and struggling to find a management philosophy that suits it.

“I think the transition from making small numbers of luxury cars into mass production, large-scale, [of the] new Tesla 3s is a whole complete different challenge” for Mr. Musk, Art Wheaton, a labor-relations expert at Cornell University, tells The Christian Science Monitor in a phone interview.

“I think [Musk’s] response [to possible unionization] is directly related to his desire to have a stronger control over the company,” he says.

Tesla is entering a critical year as it prepares to broaden its market share. The company delivered a total of 76,230 cars last year, with starting prices ranging from $68,000 to almost $139,000. But later this year, it plans to roll out the Model 3, a relative bargain at $35,000, and hopes to hit 500,000 annual deliveries in 2018.

To keep pace with the new demand, Tesla plans to increase its Fremont workforce from 6,210 to 9,315. But it’s not certain whether this investment will pay off. According to Business Insider’s Matthew DeBord, “A $35,000 compact sedan brings in a lot less than a $100,000-plus mid-size SUV. For Tesla, the Model 3 is a far greater risk than the Model S or X were.”

Mr. Wheaton says that this risk places far more pressure on Musk to get it right. “He can't afford to lose something,” he says of Musk. “If unionization takes away his ability to tell people to do whatever he wants, and go the extra mile, [and say,] ‘We don't care, our company need this,’ ...I think that's part of his frustration."

Cutthroat competition is nothing new in Silicon Valley, and some of its greatest success stories – particularly Steve Jobs – held their teams to painful standards to bring their visions to reality.

On an institutional level, tech firms have used a variety of incentives – ranging from stock options and generous maternity leave to Google’s free candy and on-site fitness center – to secure employee loyalty.

In his response to Moran’s article, Mr. Musk gave hints of that same management philosophy.

Moran had accused Tesla of paying its workers below the industry average; Musk argued that “unlike other car companies, everyone is awarded shares and you get to buy stock at a discount compared to the public through the employee stock purchase program.” Over the stock options’ four-year vesting period, he argued, “a Tesla team member earned between $70,000 and $100,000 more in total compensation than the employees at other US auto companies!”

While employees wait for their options to vest, Musk promised, they’ll have plenty of other reasons to love Tesla, including “free frozen yogurt stands scattered around the factory and my personal favorite: a Tesla electric pod car roller coaster.”

But Moran’s demands were more down-to-earth. “Most Tesla production workers earn between $17 and $21 hourly,” he wrote. “The living wage in Alameda county, where we work, is more than $28 an hour for an adult and one child (I have two).”

Cornell’s Wheaton sees a mismatch between the workers’ problems and Musk’s proposed solutions. “For manufacturing on the lower end of the pay scale, stock is nice but I really want to be able to pay my house payment." he says. "A bank will not give you a loan based on stock price. They will give you a loan based on what your take-home pay is, because that is more dependable, predictable income.”

As for Musk’s other promises, “I will give up my free frozen yogurt if I can have my house payment.”

He thinks that unionization could help the workers articulate these concerns and propose solutions – and that it may not be the company-killer that Musk fears. The UAW represented workers at the Fremont Plant, which hosted a successful GM-Toyota joint venture, for decades before Tesla took it over in 2010.

He says the union's local branch could plausibly argue, “We know all about the auto sector, we know more about it than Musk does, we know mass production, we can help you here." Mr. Moran says he shares that goal. "Workers are ready to help make the company more successful and a better place to work," he wrote.

Wheaton says he thinks Musk is sincere, and that Tesla's employees wouldn't want to risk bringing the company down with hardball negotiating tactics.

“A quote from [former UAW Vice President] Don Ephlin is, ‘Some people invest their money in their company, some people invest their life.’ Those people in Tesla ... they're investing their life. They plan on being there as long as they can so they can support a family. They don't want to screw it up."