For Tesla, life without Elon Musk once seemed like a long way off. Now it could be imminent. The Securities and Exchange Commission sued Musk…
For Tesla, life without Elon Musk once seemed like a long way off.
Now it could be imminent.
The Securities and Exchange Commission sued Musk on Thursday, accusing him of fraud and asking a judge to remove him as CEO and chairman of Tesla.
That move raises the serious possibility that Tesla could be forced to find a new leader at a crucial time for the company, which is fervently trying to end its money-losing ways and improve its fledgling production of the vital Model 3 electric car.
“Tesla and Musk are inextricably connected,” Autotrader analyst Michelle Krebs said. “Without Musk, if that should happen… can it maintain that strength of brand and almost cult-like following?
The thought of Tesla without Musk is like Ford Motor Co. without Henry Ford. It’s unthinkable until, one day, it happens.
The difference is that Ford was already one of the world’s largest, most diversified automakers when Henry Ford exited. Tesla remains a niche electric-vehicle company aspiring to be much more.
Talking Tech: Can Tesla CEO Elon Musk survive SEC charges? 5 key factors to watch
Talking Tech: Here are Amazon’s 5 best deals right now
Talking Tech: Gig economy: Here’s how much you can make delivering for Grubhub, Uber Eats and DoorDash
Musk is a “charismatic character who had a vision which is somewhat contagious,” said Ian Beavis, chief strategy officer for automotive consultants AMCI Global. “He is like what Steve Jobs created for Apple.”
But unlike Jobs, who nurtured Tim Cook to succeed him as CEO, Musk has no one on the bench ready to take over as manager of this team.
In fact, he has declined to hire a clear No. 2 executive despite calls for him to install a chief operating officer with financial and manufacturing expertise to speed up production of the Model 3 electric sedan. He has also churned through dozens of other executives, making leadership instability one of the only constants at the company.
“He hasn’t cultivated a next generation of managers and operators to make the company move forward,” Beavis said. “It’s all about him.”
By contrast, his other major company, rocket-ship maker SpaceX, has a clear team of well-qualified executives in the background executing his vision.
Musk is more than just the public leader of the company – to many investors he is the company, corporate branding expert Rob Frankel said.
“He’s 100 percent the face of all of his interests, everything from flamethrowers to rocket ships,” Frankel said. “I would say he’s probably got higher public awareness than some of his own brands. That’s by design. That’s a big issue.”
Without Musk at the helm, Tesla could face radical changes. Key possibilities:
1. A successor from the outside is appointed.
Musk’s successor almost certainly would come from outside the company. The candidate could also be found outside the auto industry, much like Ford hired CEO Alan Mulally in the 2000s to execute a turnaround, Krebs suggested.
But possible contenders for the job are extremely difficult to identify.
“Given the financial condition of the company, production problems and logistics/
delivery problems, it is unclear how quickly the Board could bring in a seasoned automotive executive even if they wanted to,” Cowen analyst Jeffrey Osborne wrote.
Musk could negotiate a diminished role at Tesla as part of a settlement with the SEC, likely serving in a visionary or engineering role capacity.
It wouldn’t be unprecedented. In 2003, the SEC sought to bar lifestyle guru Martha Stewart from serving as a director and restrict her activities as an officer of any publicly traded company when the regulator accused her of insider trading in shares of biopharmaceutical company ImClone Systems.
However, a 2006 settlement imposed a lesser penalty: a five-year bar on Stewart serving as a director of a public company and a five-year restriction on the scope of her service as an officer or employee of such a firm.
She had already resigned as CEO and chair of Martha Stewart Omnimedia in 2004 after being found guilty on criminal charges of obstruction of justice and other allegations. She took on the role of the company’s founding editorial director.
In 2011, Stewart rejoined the company’s board of directors.
Musk has previously contemplated the possibility of one day relinquishing his post as CEO and focusing on product development.
This outcome would allow Tesla to maintain Musk’s appeal while fixing its operations under new executive leadership.
But it’s unclear whether strong-willed Musk could defer to a newcomer.
“Musk is very dynamic and very strong, and I think his visions are pretty much encoded in the DNA of all of his companies,” Frankel said. “Even if the SEC says, ‘you can’t own it, you can’t touch it, you can’t do anything,’ there’s nothing to say that he can’t counsel them, he can’t advise them.”
Under Musk, Tesla has pursued a wide range of world-changing products, including electric cars, an electric semi-truck, solar roof tiles, batteries for the home, batteries for utilities and solar panel installation.
Some critics say the company is unfocused and needs to devote its efforts to its core business: electric-vehicle production and sales.
“They’re in a precarious financial situation, and this is make-or-break time on the financial front,” adding to the company’s need to get the Model 3 electric car into customers’ hands, Krebs said.
A more focused Tesla could be a more viable Tesla, perhaps even with sustainable profits to show for it.
Tesla’s board backed Musk’s leadership and integrity after the SEC lawsuit was filed. But the board members have come under fire for not providing sufficient oversight of Musk.
The board may yet feel pressure to nudge Musk to settle the case before the ship sinks.
“The problem is the board has done nothing to date, period,” said John Coffee, a securities law expert and professor at the Columbia University Law School.
