The SEC’s Tesla solution mimics my own but there is work to be done

When I last wrote about Tesla, I ended this way:

It’s clear to me that Elon Musk is not focused. He’s erratic and impulsive. Those are not the traits you need in a Chairman and CEO, when you have a cash crunch staring you in the face just as competition in your space is heating up.

If he stays on in this dual role, I believe Tesla will fail and the stock will go to zero. The board needs to act quickly and find some steady hands to take Tesla forward or it will get very ugly for the company in short order.

Both Tesla bonds and stock are a sell.

The key was Musk’s dual role as Chairman and CEO. Get rid of his Chairman role and provide him some proper oversight and management support and Tesla would be in a better position. The recent SEC settlement with Tesla goes a long way toward doing that. And the stock is up significantly in the pre-market on the news.

Tesla the innovator

I like John Paul MacDuffie’s take on this in the New York Times. Here’s what I like:

Elon Musk’s decision to settle fraud charges against him — by paying a $20 million fine to the Securities and Exchange Commission and agreeing to step down as the chairman of Tesla, the company he co-founded — is the best possible outcome for both investors in Tesla and anyone who cares about the future of electric vehicles.

By giving up the chairmanship for three years, Mr. Musk will have the chance to focus on some of the huge tasks still ahead for the company, particularly raising the financing to meet the company’s looming debts. And the governance measures imposed by the S.E.C. — for new board members, better review of communications and a permanent committee of independent board members to monitor disclosures and conflicts of interest — are exactly what the company needs to prevent another social media-fueled debacle.

…Tesla, under Mr. Musk, has been the single most significant force driving the global automotive industry — and the consumers who purchase cars — to take the prospect of a fully electric vehicle future seriously…

Tesla under new leadership, or as a unit of a much larger company, might be able to maintain what Mr. Musk has achieved. But Tesla’s survival thus far has been a tightrope act, and falling off is virtually guaranteed without Mr. Musk.

Four Points:

  1. Tesla is forcing change onto the auto industry.
  2. Tesla, as a standalone company, without Musk, wouldn’t be the same. He is a great visionary and salesman. And that’s important for customers and investors. It’s also key for fundraising.
  3. But Tesla with Musk as Chairman and CEO is a disaster.
  4. With the right oversight and support, Musk can best execute on his vision

Going forward

There are a lot of uncertainties at Tesla still. The loss of senior management due in part to Musk’s erratic behavior and the lack of other power centers within the organization to balance him cannot be overcome overnight. Still, if the board installs a good Chairman and puts a check on Musk, the company can concentrate on making cars and meeting targets. If it does so, it will be able to go to market and raise capital as well.

The SEC fine and settlement is a blessing in disguise for Tesla. The ball is in their court now. It’s up to Tesla’s board now to make the governance changes needed.

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