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Since the infamous tweet of Elon Musk on August 7 "Plans to take private Tesla at $ 420. Financing obtained."There has been increasing investor pressure for a change in management at Tesla. The SEC ruled that the tweet was against the rules for a public company, resulting in a $ 20 million fine for Tesla and an additional $ 20 million for Musk. In addition, Musk has been ordered to retire from his position as president for three years. (Although the fine seems significant, compared to a net fortune of about $ 20 billion for Musk, it equates to a $ 100 parking ticket for an average American.)
And thus emerges a relevant debate. Is Musk still able to lead Tesla, as his ambitious goals will only intensify pressure on his leaders in the future?
(AP Photo / Chris Carlson)
First, some facts (as of October 8, 2018):
- Market capitalization: $ 45.6 billion
- Total number of employees employed by Tesla: 46,000 in June 2018
- Mandate of Elon Musk: 14 years
- Revenue: $ 13.68 billion (last twelve months)
- Operating margin: -16.24% (last twelve months)
- Profit margin: -19.89%
Tesla is currently operating at a loss. It's not so surprising. The automotive sector is a capital intensive industry. However, Musk said its priority now is to achieve sustained profitability and positive cash flow. Is Musk the right CEO to do it?
To answer this question, it is necessary to analyze the assets and liabilities of Musk point by point.
- Asset: Tesla is a stock of history. Aswath Damodaran, professor of finance and corporate finance at the NYU Stern School of Business, defines stock history as a stock "where[by] The story is so dominant in the way people rate the stock and what determines its value as the figures fade into the background or have a side effect. " Story's stocks share three defining characteristics. One, they are usually nascent companies, ie. the value comes from future growth. Two, they are targeting a big market. Third, and most importantly in this discussion, the CEO is woven into the fabric of society, becoming inextricable from the history of society. Tesla is a stock of history. And Musk is crucial for this story.
- Asset: Strategy and vision are essential elements of Tesla. Tesla is a young company that is moving towards maturity. Setting solid strategic goals is essential to effectively navigate this path. According to an article from Harvard Business Review, this strategy represents on average 21% of what CEOs do. This figure could potentially be higher for growing companies as CEOs drive this growth. And Musk is driving this strategy, a vision that has been driving Tesla's success for 15 years.
- Asset: Musk inspires employees. After spending time on the Tesla site, Tim Urban of Wait but why reported several discussions with Tesla employees:
- "Working with him is not a comfortable experience, he is never satisfied with himself, he is never really satisfied with his surroundings … the challenge is that he is a machine and we are not satisfied with him. . "
- "Elon wants to know," Why do not we go faster? He always wants bigger, better, faster "by the same person who, a few minutes later, stressed how Musk had tend to be fair and thoughtful when he employee fired. "
- Although many employees mentioned that Musk was not easy to work with, they all agreed that they respected him deeply. And respect is probably harder to find.
- Responsibility: The operational bloopers of Tesla. For starters, he often missed his production goals, only recently producing 5,000 of the 6,000 model 3 units a week. This could suggest systemic operational problems within the organization, which are supposed to be a symptom of Musk's inability to delegate. Musk often intervenes to rectify or speed up the process.
- Responsibility: The financial bloopers of Tesla. The first of them was the acquisition of SolarCity. Aside from the conflicts of interest, the most glaring problem of this acquisition is its negative cash flow. It is also unlikely that the financial profile will improve significantly in a sector where products are not differentiated. Then, Tesla chose the debt to meet its capital needs. As Damodaran points out, "Tesla's decision to borrow more than $ 5 billion was almost incomprehensible, given Tesla's position at the time ….[T]no valid reason could be given for this loan, since none of the usual arguments in favor of the debt applied "(for example, inaccessibility of own funds, tax benefits). This brings us to the last point: the debate over the privatization of Tesla. Tesla's financial profile does not indicate that he is a good candidate to initiate a transition from a public company to a private company. This is not a mature company and its market price is unlikely to be undervalued in relation to its cash flow and its results, which, for the record, are negative.
- Responsibility: recent behavior inconsistent and erratic.
To date, it can be argued that Musk has been both an asset and a liability for Tesla. Let's see where Tesla is today and what are the potential challenges.
- LadderWhile revenues increased, gross margin reached a plateau, indicating that the costs associated with increased revenues have not increased but increased accordingly. Presumably, efficiency and size will be introduced with the help of technological advances in production, which have yet to materialize effectively.
- Capital requirements: Its difficulty in scaling up operations has until now an expensive consequence. Tesla will need to leverage considerable capital to reinvest in its business to produce and meet its ambitious production targets (which was previously estimated at 1 million cars per year by 2020). In addition, in an analysis conducted by Damodaran, he indicates that the ratio of global sales of the automotive industry on invested capital is $ 1.29. Tesla is well below that at around $ 0.20.
- Business model: The economic model of Tesla is based on a pyramidal structure truncated in three. At the top of the pyramid is the Roadster, a car designed for those who can spend $ 100,000 in a motor vehicle. The next installment is its Model S, a mid-priced high-end car (though not quite the Roadster). Finally, at the bottom of the pyramid is the public car. This slice, the fastest to report the game in volume, is the Tesla 3. For many mass market consumers, the Tesla 3 still has a sticky shock, much higher than its original price of $ 35,000. Mass production of the Tesla 3 at a reasonable price will not only be a technical and operational challenge, it will also be essential to Tesla's future success.
On the basis of the evidence, reasonable cases may be established for or against the retention of Elon Musk as Tesla's CEO. What tips the scales in favor of keeping it is the scarcity of its skills: the brilliance of its strategic vision.
Gwynne Shotwell, President and Chief Operating Officer of SpaceX, could act as a stabilizing force. This is at least one option to consider.
FFollow Stephanie Denning on Twitter: @stephdenning
And also read:
How Jeff Bezos hires great people
The key to Nelson Mandela's leadership
PepsiCo's Norai on the Compromise of Being Chief Executive Officer
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Since the infamous tweet of Elon Musk on August 7 "Plans to take private Tesla at $ 420. Financing obtained."There has been increasing investor pressure for a change in management at Tesla. The SEC ruled that the tweet was against the rules for a public company, resulting in a $ 20 million fine for Tesla and an additional $ 20 million for Musk. In addition, Musk has been ordered to retire from his position as president for three years. (The fine seems considerable, compared to a net fortune of about $ 20 billion for Musk, but it is equivalent to a fine of $ 100 for the parking of an average American.)
And thus emerges a relevant debate. Is Musk still able to lead Tesla, as his ambitious goals will only intensify pressure on his leaders in the future?
First, some facts (as of October 8, 2018):
- Market capitalization: $ 45.6 billion
- Total number of employees employed by Tesla: 46,000 in June 2018
- Mandate of Elon Musk: 14 years
- Revenue: $ 13.68 billion (last twelve months)
- Operating margin: -16.24% (last twelve months)
- Profit margin: -19.89%
Tesla is currently operating at a loss. It's not so surprising. The automotive sector is a capital intensive industry. However, Musk said its priority now is to achieve sustained profitability and positive cash flow. Is Musk the right CEO to do it?
To answer this question, it is necessary to analyze the assets and liabilities of Musk point by point.
- Asset: Tesla is a stock of history. Aswath Damodaran, professor of finance and corporate finance at the NYU Stern School of Business, defines stock history as a stock "where[by] The story is so dominant in the way people rate the stock and what determines its value as the figures fade into the background or have a side effect. " Story's stocks share three defining characteristics. One, they are usually nascent companies, ie. the value comes from future growth. Two, they are targeting a big market. Third, and most importantly in this discussion, the CEO is woven into the fabric of society, becoming inextricable from the history of society. Tesla is a stock of history. And Musk is crucial for this story.
- Asset: Strategy and vision are essential elements of Tesla. Tesla is a young company that is moving towards maturity. Setting solid strategic goals is essential to effectively navigate this path. According to an article from Harvard Business Review, this strategy represents on average 21% of what CEOs do. This figure could potentially be higher for growing companies as CEOs drive this growth. And Musk is driving this strategy, a vision that has been driving Tesla's success for 15 years.
- Asset: Musk inspires employees. After spending time on the Tesla site, Tim Urban of Wait but why reported several discussions with Tesla employees:
- "Working with him is not a comfortable experience, he is never satisfied with himself, he is never really satisfied with his surroundings … the challenge is that he is a machine and we are not satisfied with him. . "
- "Elon wants to know," Why do not we go faster? He always wants bigger, better, faster "by the same person who, a few minutes later, stressed how Musk had tend to be fair and thoughtful when he employee fired. "
- Although many employees mentioned that Musk was not easy to work with, they all agreed that they respected him deeply. And respect is probably harder to find.
- Responsibility: The operational bloopers of Tesla. For starters, he often missed his production goals, only recently producing 5,000 of the 6,000 model 3 units a week. This could suggest systemic operational problems within the organization, which are supposed to be a symptom of Musk's inability to delegate. Musk often intervenes to rectify or speed up the process.
- Responsibility: The financial bloopers of Tesla. The first of them was the acquisition of SolarCity. Aside from the conflicts of interest, the most glaring problem of this acquisition is its negative cash flow. It is also unlikely that the financial profile will improve significantly in a sector where products are not differentiated. Then, Tesla chose the debt to meet its capital needs. As Damodaran points out, "Tesla's decision to borrow more than $ 5 billion was almost incomprehensible, given Tesla's position at the time ….[T]no valid reason could be given for this loan, since none of the usual arguments in favor of the debt applied "(for example, inaccessibility of own funds, tax benefits). This brings us to the last point: the debate over the privatization of Tesla. Tesla's financial profile does not indicate that he is a good candidate to initiate a transition from a public company to a private company. This is not a mature company and its market price is unlikely to be undervalued in relation to its cash flow and its results, which, for the record, are negative.
- Responsibility: recent behavior inconsistent and erratic.
To date, it can be argued that Musk has been both an asset and a liability for Tesla. Let's see where Tesla is today and what are the potential challenges.
- LadderWhile revenues increased, gross margin reached a plateau, indicating that the costs associated with increased revenues have not increased but increased accordingly. Presumably, efficiency and size will be introduced with the help of technological advances in production, which have yet to materialize effectively.
- Capital requirements: Its difficulty in scaling up operations has until now an expensive consequence. Tesla will need to leverage considerable capital to reinvest in its business to produce and meet its ambitious production targets (which was previously estimated at 1 million cars per year by 2020). In addition, in an analysis conducted by Damodaran, he indicates that the ratio of global sales of the automotive industry on invested capital is $ 1.29. Tesla is well below that at around $ 0.20.
- Business model: The economic model of Tesla is based on a pyramidal structure truncated in three. At the top of the pyramid is the Roadster, a car designed for those who can spend $ 100,000 in a motor vehicle. The next installment is its Model S, a mid-priced high-end car (though not quite the Roadster). Finally, at the bottom of the pyramid is the public car. This slice, the fastest to report the game in volume, is the Tesla 3. For many mass market consumers, the Tesla 3 still has a sticky shock, much higher than its original price of $ 35,000. Mass production of the Tesla 3 at a reasonable price will not only be a technical and operational challenge, it will also be essential to Tesla's future success.
On the basis of the evidence, reasonable cases may be established for or against the retention of Elon Musk as Tesla's CEO. What tips the scales in favor of keeping it is the scarcity of its skills: the brilliance of its strategic vision.
Gwynne Shotwell, President and Chief Operating Officer of SpaceX, could serve as a stabilizing force. This is at least one option to consider.
FFollow Stephanie Denning on Twitter: @stephdenning
And also read:
How Jeff Bezos hires great people
The key to Nelson Mandela's leadership
PepsiCo's Norai on the Compromise of Being Chief Executive Officer
