Lessons from Tesla: Short-Term Thinking and Short-Term Layoffs

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Again, Tesla and their CEO Elon Musk are generating a lot of news and, I think, many things to think about, even if the lessons learned are, perhaps, about things NOT to do in our organizations.

See previous posts about Tesla

As you might know, Tesla has been very much behind schedule with their Model 3 production ramp up. Last week, we saw news stories about a production shutdown that's intended to get things back on track:

Tesla Is Temporarily Shutting Down Model 3 Production. Again.

Comparing them to another automaker, Toyota Way Principle #1 says:

“Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.”

A production shut down hurts in the immediate short term since they're not building cars (and they're already behind schedule). But, if you can make improvements in those days, and your resulting production rate is higher, then it's helpful to do the shutdown (if not necessary).

So what is happening, according to BuzzFeed:

“The announcement of the four- to five-day production pause for the Model 3 came without warning, according to Tesla employees who spoke with BuzzFeed News.

During the pause, workers are expected to use vacation days or stay home without pay; a small number of workers may be offered paid work elsewhere in the factory.”

The way Tesla is treating hourly workers illustrates a key difference in their approach and the way Toyota would handle things.

In short, Tesla is being more like General Motors than Toyota here.

Tesla, with the exception of “a small number of workers” isn't paying workers over this time frame. This disrupts people's paychecks (although some might actually appreciate the rest and time off if they've been working a lot of overtime to get cars out the door).

Toyota has a clear and consistent standard of PAYING employees to come in and work during production shutdowns. Toyota did this during the financial crisis and during shorter production stoppages after the tsunami that affected Japan in 2011, as I blogged about then. Toyota paid workers in San Antonio after some storm damage affected the plant in 2016, as I also blogged about.

You might be asking, “Why would Toyota do that? Toyota's not a charity, right?”

Toyota is NOT a charity. They're taking the long-term perspective.

For one, there are many things that employees can do that are beneficial to them and the company during a production shutdown, things that are worth paying them for. Training and cross-training is a good use of time and money, as a better-trained and more-broadly-trained workforce is good for the company. Being trained in more jobs means more opportunities to rotate jobs during the day, which should reduce ergonomic risk and injuries (and Tesla says reducing injuries is a priority).

Toyota also pays workers to participate in “Kaizen” improvement activity. Engaging workers and tapping into their ideas can improve safety, quality, and productivity going forward. Robots can't participate in Kaizen and, hopefully, Elon Musk is coming to learn that (his long-term fears about A.I. aside) improvement ideas are another reason why “humans are underrated,” as I blogged about on Monday.

Hey @ElonMusk: Toyota Never Thought “Humans are Underrated”

I think the final reason Toyota chooses to pay employees during downtime is that it builds loyalty. Hourly workers probably feel better when a company considers them to be a long-term partner in the business instead of viewing them as an expendable hourly cost.

This is true in retail, as some “Good Jobs” employers are bucking the trend:

So-Called “Just in Time” Retail Staff Scheduling is not #Lean At All

Back during the Tsunami period, GM and Toyota both had about $30 billion in the bank. Toyota chose to pay workers, while GM used short-term layoffs. I'm sure GM would say the types of things we hear from hospitals when they are laying off staff, things like “we were forced to” and “we had no choice.”

There's always a choice. I don't like hearing executives play the victim. There's always a choice. Some choices are born from a different philosophy. Some choices are better than others and some choices are more short-term focused.

Here is a blog post from the earthquake/tsunami timeframe:

GM Blames Layoffs on the Japan Earthquake and JIT; Should Instead Look in Mirror

I hope hospitals consider the choices and the impact it has when nurses are sent home a few hours early without pay because it benefits the hospitals

If Your Hospital Wants to “Implement #Lean,” You Need to Learn This Lesson from Toyota

I asked Lean/Toyota legend John Shook once if Toyota would send workers home a few hours early, without pay, if production was down. Without pause, he said:

“Never.”

To summarize, Toyota isn't being nice or charitable when paying workers. They're making a long-term business decision. Of course, that requires having cash in the bank (and, in the case of GM, having a different mindset to go along with that cash).

Maybe Tesla can't make that decision because some fear they are on a path to bankruptcy since cash flow has been so bad?

In one of my next blog posts, I'll write about the attempt at an inspirational memo from Senior Vice President of Engineering Doug Field to Tesla employees, something that was mentioned in the BuzzFeed piece. Does a memo like that really rally the troops after they've been told, through a previous short-term layoff, that they're expendable?

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Mark Graban is an internationally-recognized consultant, author, and professional speaker who has worked in healthcare, manufacturing, and startups. His latest book is Measures of Success: React Less, Lead Better, Improve More. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. He also published the anthology Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also a Senior Advisor to the technology company KaiNexus.

6 Comments
  1. Bob Rush says

    Tesla is an example of a company doing too many things at once. They are an incredible technology company but failing at the basics of a manufacturing company. Is hitting a home run every time critical or even desired? Build up runs through a series of singles to build momentum. Just my personal opinion.

  2. Mark Graban says

    Follow the discussion on LinkedIn:

    Is the building possessed by pre-NUMMI GM? Seems like Tesla is making every mistake GM did back in the day.

  3. Andy Wagner says

    To me the striking news in this story is that they’ve missed so bad in their production system design that they have to stop for two days to implement improvements that *still* won’t get them to the promised build rates. And another similar stop will occur in June for the next increment of capacity.

  4. D Scott says

    It’s so awful when hourly workers get the shaft. They are already marginalized. They don’t make enough to take real advantage of company benefits. I witnessed hourly workers regularly cashing in 401ks and raiding their HSA accounts just to pay bills. I also saw a planned plant-wide shutdown that was intended to be kept secret until it happened (I wonder who let that cat out of the bag?). Their pay rates, bonuses and raises typically have no relation to company performance but are just “regionally competitive.” And its the top level management who drives it. Ask most middle and upper management if they’d forego a week’s pay for the good of the company…most would…and would gain front line loyalty from doing it. Ultimately, its just senior level, short sighted, bad business practices, and a disgrace.

  5. Mark Graban says

    Comparing Tesla to Honda:

    Honda to Trim Production of Its Flagship Sedan
    The auto maker will stop making its Accord for 11 days through July to align production with market conditions

    The plant’s 4,200 employees have the option of taking vacation days, unpaid days or coming into work to do other tasks.

    I’m sure “other tasks” include maintenance, training, improvement work, etc.

    The workers at Honda are being given a choice during a shutdown. It doesn’t sound like that was the case at Tesla.

  6. […] Lessons from Tesla: Short-Term Thinking and Short-Term Layoffs by Mark Graban […]

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