One Idea From Tesla We Should All Steal: A Low-Interest Employee Loan Program

By: | May 29, 2019

Les Williams, CRM, is Co-Founder and Chief Revenue Officer of Risk Cooperative. He holds a B.S. in Mechanical Engineering from the University of Virginia and an MBA from Harvard Business School. Prior to joining Risk Cooperative, Les served in various institutional sales positions at SoHookd, JLL, and IBM.

Earlier this Spring, Tesla announced that it would be rolling out loan programs for its employees.

This unique announcement offers a ray of light for employees during an otherwise cloudy first half of the year for the electric vehicle company.

Tesla Losing Its Charge?

According to its Q1 2019 10K report, Tesla’s energy generation and storage business saw revenues decrease by $85.4 million compared to Q1 2018.

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Additionally, in the U.S., the federal tax credit for buying a qualified electric vehicle has been reduced to $3,750 for all vehicles delivered during the first or second quarter of 2019, and further reductions will occur throughout the last two quarters of the year.

This tax credit will vanish entirely beginning Jan 1, 2020. While the company believes this action will cause consumers to expedite vehicle purchases during this calendar year, future sales projections remain nebulous without this important incentive in place.

Compounding issues for Tesla is the recent logistical problems causing international customers delayed delivery times for their vehicles.

As more competitors enter the electric vehicle market, Tesla must promote supply chain resiliency given vehicle sales plummeted from 90,000 in Q1 2018 to just 63,000 during the first quarter of 2019.

Planning for the Future

Tesla has ambitious plans to reverse its sales decline, including the construction of new Gigafactories in the U.S. and Shanghai, yet trouble remains on the horizon for its workforce as it fights to right the ship.

At Tesla’s Fremont, Calif. vehicle assembly plant, recent assembly line problems caused the factory to shutter for a short period resulting in missed pay for these hourly workers.

In a society where the average American does not have $500 in savings to cover an emergency, every dollar in a paycheck counts or is spoken for.

Traditionally, workers in populations affected by income interruptions (such as missed pay due to plant closures) have taken drastic measures like delaying retirement saving, withdrawing 401(K) savings early and incurring penalties, relying on credit cards with high interest rates, or even working with expensive payday loan outfits to make ends meet.

Tesla’s approach to assisting employees is a formula that should be adopted by more companies, both inside and outside of the tech or manufacturing industry. This employee loan benefit can be marketed to new hires and younger employees as a benefit similar to other perks such as group life insurance; you can only enjoy this benefit if you work at a particular company offering it.

While these new factories will be instrumental in the development of electric cells and solar energy technology to boost revenue, Tesla was prescient by implementing an employee loan benefit to retain talent during this tumultuous time in its history.

This program allows employees to borrow money at low rates and pay back the loan via payroll deduction.

Developed by Salary Finance, a tech startup that worked with its strategic partner Axos Bank, Tesla does not profit from this program. Salary Finance usually allows borrowers to take loans up to 20% of their salary and allows them to repay at rates under 5%.

Employee sentiment at the automaker has been positive, efforts made to satisfy the financial well being of the workforce have shown an investment in talent.

A Model for Other Industries

Tesla’s approach to assisting employees is a formula that should be adopted by more companies, both inside and outside of the tech or manufacturing industry.

This employee loan benefit can be marketed to new hires and younger employees as a benefit similar to other perks such as group life insurance; you can only enjoy this benefit if you work at a particular company offering it.

Student-loan debt has surpassed the $1.5 trillion mark for the first time in American history, a sum greater than credit card and automobile debt.

This debt is unique in the fact that student loans cannot be written off in bankruptcy proceedings, creating an untenable financial hardship for the borrower.

Similar to workers who miss paychecks, these young employees may need a small cash infusion to assist them in the early stages of their career as they struggle with student loan debt.

The nation witnessed many government employees and government contractors suffering through the 21st Government Shutdown earlier this year, many of whom procured part-time jobs to make ends meet.

Imagine a world where an employee loan benefit exists for these workers, where their loan amount can be based upon future earnings once the government resumes normal operations?

For many people, particularly new entrants in the workforce, their greatest asset is future earnings potential.

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Tesla’s move to enable workers to procure low-interest competitive loans against this security, plus the added benefit of increased employee loyalty, offers a great paradigm for other sectors.

Care must be taken, however, to ensure that this corporate indebtedness does not translate into a modern form of indentured servitude, wherein employees offset low, real wages for loans where the combination of the two enables them to afford high living costs.

Insurance programs that can help bridge financial setbacks, such as worker’s compensation, short- and long-term disability insurance, as well as other income continuity solutions can help shield employees … as well as lenders backing these types of employee loan programs.

By prudently deploying an employee loan benefit program, in conjunction with other available group insurance programs, companies like Tesla can re-energize employee performance, retention and morale. &

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The R&I Editorial Team can be reached at [email protected]