Elon Musk: Why Tesla Fired 700 Employees

November 2, 2017, 12:51 AM UTC

Tesla CEO Elon Musk called recent media coverage over the company’s decision to fire about 700 employees following annual performance reviews “ridiculous” and that the automaker must have higher standards than its competitors if it hopes to survive.

“At every company in the world, there’s annual performance reviews,” Musk said, adding that Tesla has an extremely high standard, and one that’s far higher than other car companies. “You can’t be a little guy and have equal levels of skill as a big guy.”

Tesla employs 33,000 people. A 700-person cut—the number Musk cited Wednesday during Tesla’s third-quarter earnings call—would mean Tesla dismissed about 2% of its workers.

The San Jose Mercury News reported in October that an estimated 400 to 700 Tesla employees were dismissed, many of whom said the dismissals came with little or no warning.

Tesla told Fortune that these cuts were made following the company’s annual performance review process. The United Auto Workers filed a complaint against Tesla on Oct. 25, claiming the company fired workers who were trying to unionize.

“You have two boxes of equal ability, and one’s much smaller, the big guy’s going to crush the little guy, obviously,” Musk elaborated. “So the little guy better have a heck of a lot more skill or he’s going to get clobbered. So that is why our standards are high. They’re not high because we believe in being mean to people. They’re high because if they’re not high, we will die.”

Musk emphasized that in spite of these high standards only 2% of people “didn’t make the grade,” noting that this is a “very low percentage.” Musk also said reports didn’t include that “several thousand employees were promoted and almost half those promotions were in manufacturing.”

In a previous statement sent to Fortune, Tesla said 17% of its employees were promoted, and almost half of those promotions were within its factory in Fremont.

A quick look at Tesla’s career page shows a different, yet related problem: lots of job openings. It’s an issue the Musk later addressed in the earnings call, noting that the company is “sucking the labor pool dry” to fill positions at its factory in Fremont, Calif., and battery factory near Reno, Nevada.

Tesla reported Wednesday that it lost $619 million in the third quarter, its biggest-ever quarterly loss. Those losses were bigger than usual as Tesla tried to speed up production of its more affordable Model 3 sedan.

The company said it had $3.53 billion in cash and cash-equivalents as of Sept. 30, compared to $3.04 billion at the end of the second quarter.

Last month, Tesla reported that it produced 260 of its new Model 3 electric cars in the third quarter, of which it has delivered 220, dramatically missing Musk’s prediction that it would produce more than 1,600 cars by September.

Overall, the company delivered 26,150 vehicles in the third quarter. Of those, 14,065 were Model S sedans, 11,865 were Model X SUVs, and 220 were Model 3 cars.