Struggling Tesla Faces an Investor Insurrection
For a company working its way into an industry that specializes in annihilating newcomers, Tesla has proven remarkably persistent. It has dodged bankruptcy, built an enormous fan base, and rolled out a series of terrific automobiles that made electric cars cool. But the secret to the company’s endurance is that someone up there likes it. Up there being top floor corner offices occupied by the investors who have kept Tesla running through 15 profitless years.
Now that Tesla is facing a series of crises—a variety of lawsuits, interrogations over the safety of its Autopilot feature, and, most of all, lagging Model 3 production—some of those up on high are revealing themselves as Old Testament–style gods: displeased with what they see happening on the ground, and ready to smite.
This morning, an activist investor published a letter calling for Tesla shareholders to kick three of its nine board members off the board and replace them with people with more relevant experience, who will be less likely to defer to defiant demigod CEO Elon Musk.
“The problem is the reality is starting to stack up, and that’s a reality of accidents the cars have had, quality issues, and massive misses on Model 3 production numbers,” writes that investor, Dieter Waizenegger, executive director of the CtW investment group. “You add all that up and there’s a real question about whether this company can deliver what it promises.”
Now that Tesla is mass producing cars, running an energy business, and has some 40,000 employees, Waizenegger says it needs board members with experience in manufacturing, utilities, and management, and who’ll be willing to help Musk through various hiccups. “They need to change the composition of the board to reflect the evolving business strategy,” he says. Tesla expanded its board last year, adding 21st Century Fox CEO James Murdoch and Johnson Publishing Company CEO Linda Johnson Rice—hardly the expertise Waizenegger hoped for, he says. “We needed to do something more dramatic.”
Musk’s refusal to answer analyst queries about Model 3 orders and capital requirements during an investor call last month (he dismissed them as “boring, bonehead questions”) didn’t assuage any concerns. “We want the company to survive,” Waizenegger says. “It is therefore concerning if you’re not able to have a serious conversation with analysts.”
So, at Tesla’s annual meeting on June 5, CtW wants its fellow shareholders to vote against the reelection to the board of venture capitalist Antonio Gracias, Elon’s brother Kimbal Musk, and Murdoch. (Like in the Senate, only third of Tesla board members come up for reelection at a time.) It’s another way of saying: Musk should keep the top spot, but he needs more oversight. Tesla declined to comment.
Waizenegger has long voiced his concerns about Tesla’s board, which has hardly changed since the company went public in 2010, and most of whose members have close personal ties to Musk.
CtW may be right, but that doesn’t make it mighty. And volubility does not mean anybody will join the cause. The firm, which runs pension funds sponsored by Change to Win, a federation of unions, holds about 260,000 Tesla shares. By comparison, the automaker’s largest shareholder, Fidelity, holds more than 16 million. And despite Musk’s concerning performance on that investor call, Tesla seems to be headed in the right direction, saying it should hit its target of building 5,000 Model 3 sedans a week in the next few months, and reach profitability soon after. Just the sort of thing that should soothe anxious investors.
“I’m betting almost all of these problems would be fine if Model 3 production went to 5,000 plus, starting relatively soon,” says Karl Brauer, an auto industry analyst with Kelley Blue Book. “You can point to plenty of automakers that have had plenty of controversial issues crop up. But if they’re overall profitable, people rightly assume they’ll get through it.”
Waizenegger maintains that experienced board members willing to help Musk manage the company are crucial to Tesla’s future. The automaker is in a particularly tough spot right now, fighting a series of crises as it tries to roll out the Model 3, the car that’s supposed to bring electric driving to the masses and profits to investors. So the doubters may be more numerous and audible than usual. But if Musk has proven anything, it’s that he can sell people on a vision and deliver—even if it takes a Hail Mary.