Elon Musk Should But Probably Won't Step Down As Tesla CEO
Last week, investor and Tesla shareholder Ross Gerber made a public plea for Elon Musk to step down as CEO of Tesla, citing two main reasons why, in Gerber's view, Musk is currently incapable of successfully leading the company. First, between his role leading other businesses (X, SpaceX, Neuralink, and the Boring Company) and his seemingly full-time government position as de facto leader of the Department of Government Efficiency (DOGE), Musk is unable to devote nearly enough of his time and energy to running Tesla. Second, through Musk's controversial statements on his own social media platform and elsewhere, and, even more so, through his controversial actions on behalf of DOGE and Donald Trump, Musk has seriously undercut Tesla's brand.
Heeding Gerber's call would be: (1) good for Tesla (and thus its shareholders); (2) good for planet Earth; and (3) even good for Musk.
(1) Good for Tesla: As readers no doubt recall, Donald Trump recently hosted what was essentially an infomercial for Tesla in the White House, while Commerce Secretary Howard Lutnick went on Fox News to promote Tesla stock to investors. Put aside whether either or both of these highly unethical actions were illegal. They are very unlikely to rescue Tesla from its slump.
Within the United States, Tesla owners have skewed wealthy, liberal/progressive, and urban/suburban. They have skewed liberal/progressive because of political polarization over climate change and the virtues of electric cars as less carbon-intensive than cars powered by conventional internal combustion engines. They have skewed urban/suburban because the charging network is substantially less developed in rural areas. Thus, there almost certainly aren't enough Trump/Musk supporters who will be induced to buy Teslas to make up for the potential customers and current Tesla owners whom Musk is alienating.
Moreover, with Trump and Musk even more unpopular in Europe than in the United States, the politically inflected sales pitch by Trump and Lutnick will do more harm than good there. And Tesla was already poised to lose market share in Europe to Chinese EV makers.
From Tesla's perspective, the upside of Musk's close relationship to Trump is the opportunity for government contracts to purchase Teslas. There may well be plans for just that, but the United States government does not purchase enough vehicles for civilian operations to make up for losses in consumer sales. Perhaps Trump could also give Tesla sweetheart deals to supply non-combat or even combat EVs to the US military, but that would essentially require Tesla to design and engineer new vehicles and transform itself from a consumer company into a military contractor. Such a transformation might be possible, but at this point it is highly speculative and would at a minimum take years.
A much surer path to recovery for Tesla would be to remove Musk as CEO and attempt to restore the company's reputation among what has heretofore been its customer base.
(2) Good for Planet Earth: From an ideal environmental perspective, U.S. transportation policy would result in the construction and use of much more and more energy-efficient public transportation than we currently have. Still, given Americans' longstanding commitment to individual automobiles, a transition from internal combustion engines to EVs is substantially better than nothing. Tesla's success is crucial to the speed of that transition.
To be sure, all of the major U.S. and foreign automobile manufacturers, as well as new entrants like Lucid and Rivian, now offer EVs that compete with Tesla. From the Earth's perspective, it shouldn't matter whether a driver who would otherwise purchase a Tesla Y instead purchases a Hyundai Ioniq 5 or a Ford Mustang Mach-e. The important point is that they purchase an EV rather than an internal combustion engine car, right?
In theory, yes, but in practice, Tesla's medium-term success is crucial to the transition to EVs in the U.S. because the non-Tesla charging network is substantially inferior to the Tesla network. That fact underlies deals that Ford, GM, Lucid, Mercedes-Benz, and other EV manufacturers have struck to permit drivers of their cars to use Tesla superchargers. The Inflation Reduction Act provided substantial amounts of money to build up the charging network, but it has yet to result in all that much in the way of new chargers, and there is a risk that Congress (or perhaps the Trump administration acting unilaterally and probably illegally) will try to claw back unspent funds. Therefore, for the next several years, EV drivers will find that Tesla chargers are their best option for long road trips.
But here's the thing. Although the Tesla supercharger network is superior to the alternatives, it lacks the capacity to handle a substantial increase in EV use. And while Tesla continues to announce plans to expand its network, slumping sales for its EVs due to Musk's inattention and unpopularity are likely to slow the growth of the network. That, in turn, will likely discourage potential buyers of all EVs from moving off of internal combustion, hybrid, or plug-in hybrid vehicles that depend on gasoline for substantial driving distances.
(3) Good for Musk: Finally, if Elon Musk is a rational economic actor, he will recognize that he personally will be better off financially if he steps down as Tesla CEO. As of last December, Musk owned approximately 13% of Tesla's common stock. At its peak around that time, Tesla had a market capitalization north of $1.5 trillion. Its current market cap is just under $780 billion. In other words, during the period in which Musk has played an increasingly prominent role in DOGE, Tesla stock has lost nearly half its value. That's a loss in value for Musk's stake of about $100 billion. Thus, strictly from a dollars-and-cents perspective, Musk would be better off if someone else ran Tesla and restored some of its value.
Nonetheless, there is reason to think that Musk will resist calls to relinquish the reins of Tesla. As his track record running X since acquiring it as Twitter demonstrates, Musk seems less concerned with the bottom line of at least some of his companies than with other matters. However, X is now closely held by Musk, who must answer to his lenders but not to any shareholders. By contrast, Tesla is a publicly traded company. Musk has fiduciary obligations to its shareholders. The corporate board is unlikely to enforce those obligations by ousting Musk, but someone else might try.
Is that possible? I'll address that question in a forthcoming sequel either here or on Verdict. Working title: Can A Shareholder Derivative Suit Oust Elon Musk From His Role as Tesla CEO?
--Michael C. Dorf