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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Here we go again. That must have been the first thought on the minds of many Tesla shareholders this week as Elon Musk waded back into the political fray, declaring his intention to launch a third party to rival the Republicans and Democrats.
It is less than two months since Musk’s moonlighting for Donald Trump’s administration led a group of Tesla shareholders to call for their chief executive to devote at least 40 hours a week to his day job, and the latest distraction wiped 7 per cent from the stock price on Monday. Musk was unmoved. He told one analyst who suggested the board should tie his pay to the time he spends at work to “shut up”.
But at a time when Tesla is facing sagging sales and mounting competition, anxiety is on the rise and activists are again urging the company’s board to hold its CEO to account. The financial squeeze has raised a question over the carmaker’s heavy investments: Despite a severe cut to capital spending in the latest quarter, free cash flow still amounted to only about half its quarterly average over the previous three years.
Viewed through the lens of the company’s stock price, however, Tesla’s shareholders would seem to have little reason to feel blue. True, much of the euphoria that pumped up the shares following Trump’s re-election has leaked away. But they are still up 15 per cent since the election, handily outperforming the wider market. Tesla’s market cap still dwarfs the rest of the car industry, even though it only accounts for about 2 per cent of global auto sales.
The Musk effect still underpins Tesla’s market cap. The shareholders who have pumped up its stock price are fixated on the technology future that he has conjured up, not the electric car business that is the company’s bread and butter today.
Morgan Stanley, for instance, estimated Tesla’s auto business accounts for less than a fifth of the company’s potential value. Most of the rest depends on its cars achieving full autonomy: After that, it can start to rake in fees from running a network of robotaxis, while also cashing in on the software and services the company’s customers will use once they no longer need to keep their attention on the road.
Full autonomy has been a long time coming. It is nine years since Musk first laid out his robotaxi plans. But he knows how to keep the futuristic vision alive — and make it one that only he can deliver. This week, for instance, he promised that Grok, the large language model from another of his companies, xAI, would soon be embedded in Tesla vehicles — a taste of things to come, when artificial intelligence transforms the experience in robot cars.
Could anyone else persuade investors to suspend their scepticism for so long? The huge Musk premium in Tesla’s shares is an extreme version of Silicon Valley founder syndrome, the belief that only a company’s founder has the vision, and the authority, to pursue truly groundbreaking new ideas (Musk wasn’t around at Tesla’s actual founding, though he was an early investor and became a member of the board soon after).
Rubbing more salt into the wounds of shareholder activists this week was the revelation that Tesla had failed to meet a legal requirement to hold its annual shareholder meeting on time. The event will now take place in November, nearly four months late.
For boardroom experts such as Nell Minow who have long complained about Musk’s approach to governance and the response of Tesla’s board, this amounted to open contempt for normal corporate transparency: “This is one where he’s really backed himself into a corner. The requirements are very clear.”
Musk told Tesla shareholders before news of his plans for a third party broke that he would give the company much more of his attention. But there are other things that Tesla’s directors could be doing to assuage investor’s worries. One would be to work with him to rebuild Tesla’s executive ranks, which were depleted by another senior departure last week, as well as laying out a long-term succession plan.
Another would be to solve the mess caused by a Delaware court’s rejection of Musk’s $56bn stock compensation plan. Musk has warned he might lose interest in Tesla if he is not given a larger ownership stake.
Who knows, maybe Tesla’s directors could manage to organise annual meetings on time in future. The one thing they will probably never do, though, is prevent their CEO from blindsiding his own shareholders the next time he gets carried away with an idea that has nothing to do with electric cars.
