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Tesla: Firings to Continue Until Morale Improves

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Earlier this month, Tesla Inc. (NASDAQ: TSLA) announced plans to fire 250 employees at its Sacramento SolarCity office. But that does not appear to be the end of the story.

A report at CNBC today cites former employees who wish to remain anonymous who say the firings are continuing at SolarCity locations in Nevada, Arizona and Utah, as well as in California. The former employees estimate that 1,200 people have been let go, not including previously announced layoffs at both Tesla’s auto assembly plant and SolarCity.

Tesla has not confirmed how many employees have been fired, but current and former employees estimated that 400 to 700 workers at the company’s auto assembly plant were fired following annual performance reviews. That estimate was made two weeks ago following Tesla’s recall of 11,000 Model X SUVs to fix an issue related to the vehicle’s rear seat failing to lock in place.

Wednesday’s story did not generate a comment from Tesla, which referred to its statement issued earlier this month:

Like all companies, Tesla conducts an annual performance review during which a manager and employee discuss the results that were achieved, as well as how those results were achieved, during the performance period. This includes both constructive feedback and recognition of top performers with additional compensation and equity awards, as well as promotions in many cases. As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures. Tesla is continuing to grow and hire new employees around the world.

Former SolarCity employees said there were “surprised” at the statement because Tesla has not conducted performance reviews with SolarCity employees since acquiring the company late last year.

It’s no secret that Tesla needs cash. The company issued $1.8 billion in junk bonds in mid-August to help finance the ramp-up of production for the company’s new Model 3 sedan.

The company reported $3.04 billion in cash and equivalents at the end of the second quarter and $7.12 billion in long-term debt and $2.26 billion in other long-term liabilities. Since December, Tesla has burned through more than $350 million in cash and the spending on ramping up Model 3 production is just beginning.

Firing employees is a time-tested way for companies to cut costs, and if the reports of additional firings at SolarCity are true, Tesla appears to be following accepted practice.

Add to that a late September ruling by the U.S. International Trade Commission that could raise the price of solar modules and threaten SolarCity’s installation business and the case for cutting SolarCity’s workforce gets stronger.

According to CNBC, the separation agreements force former employees to sign away their rights to sue the company and accept arbitration if they want to receive their two-week severance pay.