Last week, we received Part Two of the Tesla's (NASDAQ:TSLA) Master Plan, which can be found here. It has been roughly 10 years since the first Master Plan was released by Tesla. The Second Master Plan is going to take a lot of hard work and probably a lot more capital, especially if the SolarCity (NASDAQ:SCTY) deal goes through. Eventually, the company is going to need to generate profits and positive cash flow, or investors will not continue to support Tesla. With all of that being said, I think Elon Musk should consider stepping aside as CEO, bringing in someone who can assist him in the next stage of the company's growth.
I know I will probably get a lot of pushback here, so let me be clear on what would happen. I'm not suggesting that Tesla fire Elon Musk and send him off somewhere. In fact, I would have his 2012 CEO Grant (seen on page 23 here) amended so that he could receive all of his potential shares if conditions are eventually met. My plan simply involves Elon in a Non-Executive Chairman type of role, while someone else is brought into run the business on a daily basis.
I also am not suggesting some sort of activist investor type of situation where Elon Musk is forced out. As of his latest filing, Elon Musk owned about 31.1 million shares of Tesla, and there will be around 150 million shares outstanding in the near term given the latest capital raise and some more dilution from executive compensation (not counting dilution from possible SolarCity deal). In terms of SolarCity, Elon owns 22.0% of the company according to a recent filing. So with Elon holding more than 20% of the combined company (assuming the deal goes through), plus his family's holdings, it would be very hard for an activist to oust him. In my scenario, Elon can still be a controlling shareholder.
Elon Musk has his hands in a lot of pies - Tesla, SpaceX, etc. In fact, the whole scenario involving Master Plan 2 shows that Elon can be very time challenged. If you take a look at Elon Musk's Twitter account, the Master Plan was delayed multiple times, primarily due to a SpaceX launch. Unless SpaceX disappears, Elon is still going to be very busy there, perhaps even more so in the future, along with his other ventures. In fact, on the Q1 conference call, Elon was asked about his time between the two companies, and Elon stated that Tesla was going to bring in some great executives in the future.
There are a lot of questions involving Tesla's near-term future, especially in terms of Model 3 production, profits and cash flow. Tesla lost almost $900 million on a GAAP basis in 2015, and has burned through billions in cash with no sign of positive cash flow in sight. As the company looks to produce hundreds of thousands of vehicles of year, and perhaps millions giving all the extra models that could be coming, wouldn't it make sense to bring in a leader with extensive automotive experience? This will become even more true as other names in the space start to boost their EV presence and competition becomes extremely fierce.
So as Tesla enters the next stage of its history, I think the company really needs a new CEO. Elon Musk can still have a fancy title and be involved in a lot of decision making, especially given his large ownership stake, but the company needs a leader that can deliver on promises. Production targets need to be met, profits need to be delivered, and cash burn needs to be reduced. Elon Musk has clearly shown with the Second Master Plan that he's got too much on his plate, so why not ease his burden a bit? It's probably the best idea for shareholders in the long run.
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