Doubts over Musk bloom into serious concerns for Tesla
Tesla chief Elon Musk, famous for routinely blurring the line between audacity and chaos, may have finally gone too far.
His abrupt U-turn on a grand proposal to take the electric automaker private, 17 days after tweeting that the deal was all but certain, could cost America's most valuable car company for months to come because of federal investigations, shareholder lawsuits and whistleblower complaints.
But Musk's erratic maneuvering has also amplified calls on the company's board to rethink the all-encompassing role he has secured as chief, chairman, top shareholder and head visionary. Calling him explosive and overworked, Tesla investors and analysts said the doubts over Musk's trustworthiness had bloomed into serious concerns about whether the company needs a more professional, predictable executive to take over daily command.
Cowen & Co. analysts said in a Monday note to clients that they were "hopeful that . . . the past 17 days will lead the Board down the path to bringing on a more operational CEO," while Bernstein analyst Toni Sacconaghi said the company needs a senior executive to act as the "grownup in the room."
But no one expected it would be an easy job to fill. "I would compare it to being chief of staff to the Trump administration," said Efraim Levy, an analyst at CFRA Research, who on Monday lowered his estimate of the company's stock price because of "reduced management credibility."
"There could be a taker, but there are many people who would be turned off by the realities of having Elon as CEO," Levy said.
The company is now facing Securities and Exchange Commission investigations into whether Musk had purposely misled investors to manipulate the company's stock price or punish his enemies. Tesla's stock has plunged 17% since Musk announced the deal with a nine-word tweet that he has said he fired off while he was driving.
Silicon Valley is rife with tales of visionary founders co-opted or toppled once the harsh realities of running a business became clear. Tech giants Apple and Uber both had their own tugs-of-war with prickly leaders pushed out amid public scandals and internal strife.
But Musk's talent for engineering and self-promotion has almost singlehandedly given the company an aura of revolutionary force, inspiring a fandom that sees Musk as taking down Big Auto, one car at a time.
Without Musk, analysts said, Tesla would be just another car company – and its stock price, untethered from Musk's space-age ambitions, could quickly fall back to Earth.
"He is Tesla, practically speaking," Morningstar analyst David Whiston said. "Without him, that stock loses its halo" and its ability to raise the money it needs to survive.
Musk has said he has no interest in surrendering control, the company says it fully backs him, and Tesla's board released a statement saying that "Elon's commitment and dedication to Tesla is obvious." A shareholder vote this summer to oust him as chairman failed tremendously.
But Musk has publicly struggled to meet his own astronomical demands, telling the New York Times earlier this month that his health had suffered because of the punishing hours and "excruciating" stress. "If you have anyone who can do a better job, please let me know. They can have the job," Musk said. "They can have the reins right now."
In the days before Musk announced the deal's surrender on Friday, the famously prolific tweeter deleted his Instagram account and sharply curtailed his social-media use, limiting his tweets to positive news stories, company promotional events and a few cryptic messages.
Last week, a fortnight after his fateful "funding secured" message, Musk tweeted an excerpt from T.S. Eliot's "The Waste Land," about a man who "a fortnight dead, forgot . . . the profit and loss. A current under sea picked his bone in whispers." Musk also referred readers to Eliot's notes on Wikipedia; the poet took three months of leave from his job to rest after suffering a nervous breakdown.
The company said it is not actively searching for a day-to-day operations chief, but people familiar with internal discussions say the company and the board are staying open to potential senior-level executives who could fill the role – both for practical management purposes and to protect themselves from the volatile surprises of Musk's leadership.
James Albertine, an analyst for Consumer Edge Research, urged Tesla's board last week to install a number-2 executive who could help minimize Musk's "self-inflicted wounds." The company's accomplishments were promising but "the distraction and the sideshow has been Elon," Albertine told CNBC. "He's clearly stretched too thin."
The ongoing SEC probe does not guarantee a formal case will be filed, and some former SEC officials expected investigators could conclude it with a proverbial slap on the wrist, perhaps by releasing a report suggesting that Musk and other company chiefs be more cautious with social media.
But others said Musk could face charges of negligent fraud because he failed to consult with company lawyers or board members before unveiling a maneuver that had broad market-moving impact. Legal costs of fines or settlements could total in the millions of dollars.
The deal was always a long-shot, requiring tens of billions of dollars in investment for an unprofitable company already facing $10 billion in debt. It was also optically problematic: The company would have potentially abandoned its legion of mom-and-pop shareholders and Tesla loyalists, fervent in their support of electric cars, in favor of private-equity giants and wealthy investors interested in Tesla as a business, not a cause.
Hiring a sidekick for Musk would offer its own unique challenges. The billionaire founder has long reigned unchecked as a self-described "nano-manager," prone to late-night phone calls and obsessions over minutiae ranging from car design to company finances, leading some to expect he would not take kindly to sharing operational control.
If Tesla installed a co-chief, "I would give that person less than a year, at maximum, before they quit or get fired," said Mike Ramsey, a research director at the advisory firm Gartner. "I don't see it possible for them to coexist."
Tesla has seen dozens of high-ranking engineering, financial, marketing and sales executives depart over the last few months, though company representatives have defended the exits as a normal corporate ebb and flow.
But some former executives said Musk and Tesla owed it to shareholders to consider new leadership that was less likely to be volatile. Bob Lutz, the former vice chairman of General Motors, said Musk should be given a visionary, non-controlling title that could advise a top executive with full day-to-day control.
"It may be scary, but Tesla really has no choice," Lutz said. "Elon is brilliant but also fatally flawed."
A Tesla without Elon, however, would bring its own dangers, and company observers said the automaker could sacrifice investor confidence or employee morale if it pushed ahead without him. Some likened the board's tension to Apple, whose ouster of late chief Steve Jobs in the '80s triggered an era of corporate desperation and ultimately ended in Jobs' return.
Tesla lists its heavy dependence on Musk among the "risk factors" it regularly files with the SEC. And Tesla's board, analysts said, has long taken a passive approach to Musk's leadership.
Yet there is considerable precedent for such a move, including within Musk's own empire. Gwynne Shotwell, the president and chief operating officer of Musk's SpaceX, has built the company into one of the most valuable private startups in America and helped redefine private space travel – while also steering clear of her boss' signature chaos and controversy. Some Tesla investors have grumbled that they wish they had a Shotwell, too.
Investors also point to a potential parallel: former Uber chief Travis Kalanick, another unrestrained leader of an automotive-tech company, whose replacement last year by Dara Khosrowshahi was credited with helping save the company from more bad press.
Tesla's leadership has no shortage of upcoming crises to navigate. The company has logged only six profitable months over the last decade and has seen its cash stockpile disappear. Musk has insisted the company will turn a profit in the second half of the year thanks to recent production successes with its newest car, the Model 3.
But analysts said Tesla's latest challenge may be one of its most critical: Calm the havoc with a leader who's "a lot more boring and operationally sane," as one put it, or stick it out with an impulsive boss who's the cause of much of its troubles and success.
"They can either continue on their current path – as this lurching, sometimes fabulous, sometimes messed-up company – or they finally reach a tipping point and bail catastrophically," Ramsey said. "You can't deny that the company is dying to have grown-up management around." – © 2018. Washington Post