April 8, 2020 11:30 AM, EDT

Tesla Plans No-Pay Furloughs, Salary Cuts While Plants Idled

A worker welds a Model S sedan chassis at Tesla's assembly plant in Fremont, Calif., in 2013.A worker welds a Model S sedan chassis at Tesla's assembly plant in Fremont, Calif., in 2013. (Noah Berger/Bloomberg News)

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Tesla Inc. will furlough noncritical employees without pay and temporarily cut executive salaries as much as 30% to conserve cash while the coronavirus pandemic forces the shutdown of much of its operations.

In the U.S., those ranked vice president or above will see the steepest salary reductions, followed by a 20% drop for directors and a 10% cut for others, according to an internal memo seen by Bloomberg News. Workers outside the U.S. will see similar reductions. Those who can’t work from home and aren’t assigned critical tasks will stay employees and keep their health care benefits.

The moves add Tesla to the growing number of companies slashing labor costs to weather the pandemic. The outbreak hit just as CEO Elon Musk was ramping up the production of the new Model Y crossover, accelerating output at a plant near Shanghai and clearing the way for construction of a new facility outside Berlin.

“This is a shared sacrifice across the company that will allow us to progress during these challenging times,” Tesla said in the memo. A representative for the company declined to comment.

Tesla shares rose 1% as of 9:45 a.m. April 8 in New York trading.

Reopening Plan

Tesla agreed to idle U.S. production last month days after authorities ordered the San Francisco Bay area to shelter in place. The electric-vehicle maker expects to resume normal production at its U.S. facilities on May 4, according to the memo, which is the day after the stay-at-home measure is scheduled to end.

Even after re-opening its facilities, Tesla will probably need about two weeks to ramp up production again, Dan Levy, a Credit Suisse analyst, wrote in a note late April 7. The roughly 30,000 cars that the company had in inventory at the end of the first quarter will be sufficient to meet weakened demand, he said.

The company has more than 56,000 employees, according to a recent companywide email. Its sole U.S. vehicle-assembly plant is in Fremont, Calif.

Wage adjustments and equity grants will be put on hold, according to the memo. The pay cuts are expected to last until the end of the second quarter, and those furloughed are likely to be asked to return on May 4.

Nevada, Shanghai

At its Nevada gigafactory, Tesla reduced on-site staff by 75%, according to the county where the plant is located. The facility produces battery packs and electric motors with partner Panasonic Corp.

Tesla’s Shanghai plant, meanwhile, recovered from a virus-related shutdown faster than many in the industry with the help of local authorities. After resuming operations in February, the factory surpassed the capacity it reached before the shutdown, making 3,000 cars a week, the company said last month.

Tesla also is planning to expand its lineup in China by introducing a locally built Model 3 sedan with a longer driving range from as early as this week, people familiar with the matter have said.

While Tesla is down significantly from a peak close of $917.42 in mid February, the shares are still up 30% for the year.

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