Tesla CEO Elon Musk departs after taking the stand to defend Tesla Inc’s 2016 deal for SolarCity in a case before the Delaware Court of Chancery in Wilmington, Delaware, U.S. July 12, 2021. REUTERS/Jonathan Ernst
MELBOURNE, July 13 (Reuters Breakingviews) – For a man who wants to create a better future, Elon Musk seems stuck in the past, and an alternate version at that. During testimony in a shareholder lawsuit over Tesla’s (TSLA.O) 2016 acquisition of SolarCity, the electric-car maker’s billionaire boss gave a version of history that veers from reality – and should give investors pause.
Despite trying “very hard” not to be chief executive, Musk said, “I have to, frankly, or Tesla is going to die.” That may have been true for much of its existence as a public company, when the cult that developed around Musk counterbalanced its precarious financial position in 2017 after the troubled launch of the Model 3. Musk admitted last year that the firm was at one point a month from bankruptcy.
Tesla is not out of the woods; it still relies on selling carbon credits and, last quarter, bitcoin, for much of its profit. But its manufacturing process is on solid footing and, it has $17 billion in cash from selling stock. While the company’s sky-high $633 billion valuation might take a hit if Musk left, the company would survive just fine.
If anything, his courtroom humble brag shows he has failed to do one of the most important tasks a chief executive has: to prepare a successor. To be sure, the board also bears some responsibility for this, but Tesla’s directors have a history of being asleep at the wheel.
At the time of the SolarCity acquisition, just three of the nine directors were free of any links to Musk. The board for SolarCity, where he was also chairman, could only muster two independent directors to assess Tesla’s offer. Musk did stay out of direct negotiations, but his suggestion that directors had the best interests of all shareholders at heart rings hollow. The Securities and Exchange Commission was not convinced, forcing Musk in 2018 to relinquish the Tesla chairmanship and to appoint two independent directors.
Come November he will be able to sit atop the board again. If that happens, his belief in his own indispensability might put even those modest governance improvements at risk.
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CONTEXT NEWS
– Tesla Chief Executive Elon Musk on July 12 said that he has tried “very hard not to be the CEO of Tesla, but I have to frankly or Tesla is going to die.” He made the comments while giving testimony in defence of the company’s 2016 acquisition of SolarCity.
– Union pension funds and asset managers brought the lawsuit, alleging the electric-car maker’s board was riddled with conflicts of interest and that its members breached their fiduciary duty in approving the deal. All directors named in the suit except Musk settled the suit last year for $60 million, without admitting responsibility.
– Musk was chairman of SolarCity, which was founded by a couple of his cousins, until the acquisition by Tesla. He was also its largest shareholder with a 22% stake prior to the deal.
Editing by Pete Sweeney and Katrina Hamlin
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