Tesla Motors Inc. (NASDAQ: TSLA) has been in the news lately but for the wrong reasons. Workers in Nevada have been protesting against the use of labor from other states, with approximately 100 of the walking out of the car company’s battery manufacturing site near Reno in February 2016. The workers complained that Tesla was bringing in workers from Arizona and New Mexico, depriving locals of jobs.
But as it turns out, the problem goes way deeper than that. According to a report by The Mercury News, labor agencies have been bringing in foreign workers from Eastern Europe and Central America to work in US manufacturing plants, and thousands of these workers have made their way to Tesla plants, including those in California, its home state. Foreign workers in Tesla’s plant in Fremont were paid as low as $5 an hour, according to the report. CEO Elon Musk has reacted to the report and said the company will investigate.
Tesla cars are, without doubt, a trailblazer in sustainable mobility. But producing sustainable products cannot cancel out unsustainable ways of producing them because these create negative impacts as well, and ultimately pose risks to the company.
Tesla’s ESG reporting is notoriously bare. It complies with regulatory reporting and has a Code of Conduct, but there is nothing more that gives confidence that it can manage environmental and social risks that may arise along the way. We do not know how Tesla ensures that its production and day to day operations do not create environmental impacts. We do not know if the company meets international quality standards or if it has its own that are better than all the industry standard. Tesla has had very few cases of safety issues relative to other car manufacturers and while this can certainly be an indication of higher quality and safety standards, it may also be because it has much less fewer cars on the roads than competitors.
Tesla has no labor policies beyond its Code of Conduct, which covers full-time employees only. As of 2015, Tesla had 13,508 employees, according to its 10-K report. However, it also relies on thousands of subcontractors, making its labor supply chain complex. Faced with a labor problem that is generating negative press coverage and raises the possibility of labor protests and operational risks, Tesla promises to investigate. However, we have no idea on how the company actually deals with labor issues and how far down the supply chain it take responsibility for, except through what appears to be an ad-hoc investigation. We also have no clue on how the company plans to address future labor disputes and prevent recurrence of underpaid foreign labor in its plants. As Tesla becomes bigger and its products more widely used, labor disputes can pose higher risks of work stoppages.
The point of all these is that Tesla’s ESG practices at the moment do not give confidence that it can manage risks that arise from the production of its electric cars. Tesla has not yet seen a lot of pressure on this front because it continues to be producing a product that consumers are willing to pay for. But Tesla’s business is cyclical and when the going gets rough, investors will start to look deeper into the company and may realize that it was ill-prepared to manage its problems. For companies with sustainable products, it is not just the end that matters. The means to that end sometimes matter more.