High Staff Turnover at Tesla Raises Investor Concerns

Recent reports highlight a growing concern among investors regarding the high staff turnover at Tesla, often described as a “toxic” workplace. Former employees have characterized the environment under Elon Musk as demanding, with a significant number of senior executives departing in the past year. According to the Financial Times, many departures are attributed to burnout and dissatisfaction with Musk’s political stances.

One adviser to Musk remarked, “The one constant in Elon’s world is how quickly he burns through deputies.” This sentiment reflects the rigorous demands placed on employees, with some jokingly referencing “Tesla time” as a 24/7 work ethos that not everyone can withstand. Departures have affected various departments, including the company’s Optimus robot initiative, artificial intelligence teams, and sales operations.

A separate analysis from Business Insider indicates that at least ten of Musk’s direct reports have left the company over the past year. Despite these challenges, Tesla remains a popular choice among investors, though it recently dropped out of Interactive Investor’s rankings.

Concerns Over Company Culture

The implications of a high turnover rate extend beyond employee wellbeing; they also pose risks to operational stability. A strong company culture is often linked to lower turnover and enhanced performance. Concerns surrounding Tesla’s workplace culture have been voiced by long-term investors. In 2023, a group of 17 investors holding $1.5 billion in Tesla shares sent a letter to the board, expressing worries over a “toxic culture” within Tesla factories. They cited ongoing lawsuits related to racial discrimination and sexual harassment, urging the board to better oversee Musk’s focus on the company.

The letter stated, “The Board’s meager oversight of CEO Elon Musk and other critical aspects of corporate strategy… exposes the company to substantial legal, operational, and reputational risks.” Investors also pointed to the correlation between poor workplace equity practices and lower returns, highlighting the potential for declining market share as a significant concern.

Musk’s Influence on Tesla’s Valuation

Despite the challenges, many investors acknowledge Musk‘s crucial role in Tesla’s rise as a market disruptor. While criticisms of his behavior are common, most investors do not advocate for his resignation but rather call for increased commitment to the company. In May 2023, a group of shareholders with nearly 8 million shares urged Musk to dedicate a minimum of 40 hours per week to Tesla.

In September, the Tesla board proposed a remarkable $1 trillion compensation package for Musk, contingent on achieving specific targets. Analysts at Deutsche Bank noted that this package could alleviate concerns surrounding Musk’s influence, suggesting it would enhance his commitment to Tesla and stability within the company. Meanwhile, Goldman Sachs compared this to a previous award in 2018, which is believed to have contributed to Tesla’s historical performance.

Recent market sentiment appears to be improving, with Tesla’s share price increasing by 35% over the past month, closing at $445 on September 30, 2023. This is a notable recovery from earlier declines, approaching the record high of $480 reached in December 2022. Musk’s recent purchase of an additional $1 billion in Tesla shares signals a strong vote of confidence.

However, challenges persist, particularly as approximately 75% of Tesla’s revenue is derived from its electric vehicle division, which has seen a decline in sales. The company reported a 13% year-on-year drop in deliveries last quarter, prompting questions about future growth.

As Tesla prepares to release its latest delivery numbers on October 2, 2023, analysts predict approximately 448,000 units delivered in the third quarter, representing a 3% decline from the previous year. While this is an improvement over the last quarter’s performance, it continues to reflect ongoing challenges.

Investors must weigh the implications of Tesla’s workplace culture against the potential for financial returns. While some may be deterred by Musk’s management style, others see value in the company’s innovative direction, particularly in automation and electric vehicle technology. The future will depend on how well Tesla navigates these challenges while maintaining its position as a leader in the industry.