Shareholder Vote Could Dethrone Musk
“Our culture has become so obsessed with celebrity that it’s easy to confuse fame with success,” writes Daniel Rodriguez, author of Rise: A Soldier, a Dream, and a Promise Kept. “They are not the same thing.”
I keep thinking about this quote in relation to Tesla Inc (NASDAQ:TSLA) and Elon Musk. He’s one of the most famous CEOs in the world, a modern folk hero even, yet he poses some problems for the TSLA stock price.
On the company’s last earnings call, for instance, Musk said that analysts were “asking boring, bonehead questions” that he didn’t feel compelled to answer.
That refusal to talk caused Tesla stock to crash overnight. (Source: “Elon Musk’s Most Dumbfounding Moments on Tesla’s Earnings Call,” Bloomberg, May 2, 2018.)
Chart courtesy of StockCharts.com
So we have to ask: Would our Tesla stock forecast improve if Elon Musk was removed from the equation? I think so. And apparently, I’m not alone in that opinion.
On Tuesday, a small group of activist investors will try to have Elon Musk fired from his role as chairman of Tesla’s board of directors. Votes will be cast at the annual shareholder meeting in California. (Source: “Tesla Shareholder Urges Board to Name an Independent Chairman,” Bloomberg, April 26, 2018.)
These investors are grappling with a possibly devastating reality: maybe Elon Musk is bad at running publicly traded companies.
There’s no denying that his blueprints for the future are brilliant. And yes, everything he devotes time to—from private space exploration to electric cars to renewable energy—moves society in a positive direction. That’s all true.
But it’s important to remember that not everything he touches turns to gold.
Musk has a terrible history with shareholder accountability: SolarCity Corporation was a fiasco; Tesla is over-leveraged and under-financed. And to make matters worse, his toxic relationship with analysts keeps getting worse.
None of this detracts from Musk’s visionary status. The man is an iconoclast. But it’s possible that another voice at the table could help him stay on target.
Who Wants Elon Musk Voted Out?
The proposal to oust Musk comes from Jing Zhao, a retail investor who owns 12 Tesla shares. He claims that Tesla is violating the “prevailing practice” of American and British companies by having Musk, a non-independent director, act in an oversight capacity.
Musk shouldn’t be allowed to mark his own exam, in other words.
According to Zhao, TSLA stockholders would be better off with someone else in that chair because it would ensure a minimum level of oversight.
This wouldn’t be a dramatic change. Musk would still continue in his capacity as CEO, with the only difference being a small reduction in his authority over long-term strategy.
Zhao strengthened his case by bringing up Tesla’s acquisition of SolarCity Corporation. Many analysts saw that deal as a blatant conflict of interest, because Musk was a board member (and investor) in both companies. Not to mention that SolarCity was teetering on the brink.
And, yes, Musk technically recused himself from the merger process. However, the idea was his brainchild from the beginning, meaning that, had there been a stronger oppositional voice on Tesla’s board, things could have gone very differently.
Tesla is encouraging shareholders to vote against the motion, saying: “The company’s success to date would not have been possible if the board was led by another director lacking Elon Musk’s day-to-day exposure.” (Source: Ibid.)
Could TSLA Survive Elon Musk’s Exit?
Let’s say Tesla shareholders do remove Musk from the chairman position. What happens next?
The worst-case scenario is that he leaves altogether. Musk also runs SpaceX, The Boring Company, and Neuralink—three companies that don’t have the burden of public filings and quarterly announcements. He has options.
This could hurt the TSLA stock price in the short run. Losing a mythical founder-CEO is always tough, but Musk brings a cult-like investor following wherever he goes, meaning that his departure would add significant selling pressure to the stock.
Over the long run, however, I wonder if this wouldn’t be a good idea.
After all, Musk may have already added his biggest contributions to Tesla. He came up with the business model, the “Roadster,” the “Model S,” “Model X,” “Model 3,” and “Powerpack.” How much more does he need to accomplish?
Besides, investors are currently looking for operational efficiency rather than innovation.
They want Tesla’s leadership to solve the production bottleneck that is holding up production. And since making the trains run on time is not what Elon Musk is known for, maybe this is the right time for him and Tesla to part ways.
I don’t think Elon Musk will leave Tesla, but he probably should.
His talents are best suited to cutting-edge innovation, which often takes place in quiet shadows of private markets. Not to hand-holding investors in the confines of public markets where quarterly capitalism reigns supreme.
As for the TSLA stock price, I’d wait on the sidelines until after the shareholder meeting. Right now, there is way too much uncertainty clouding Tesla stock’s future.