Does Elon Musk Really Do More Harm Than Good?

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About: Tesla, Inc. (TSLA)
by: Empire Investments

Summary

Elon Musk has recently caused a lot of harm to the Tesla brand that will take a lot of work to reverse.

Elon Musk is treading a fine line of becoming more of a detriment to Tesla than a helpful CEO.

Elon Musk should be able to reverse his actions in time and help move Tesla past these past months.

Elon Musk’s name has been in the news a lot recently, almost none of it positive. As Tesla’s (TSLA) CEO and former chair of the board of directors, he and his actions have a large effect on the business. Most people, when asked who Elon Musk is, will say, “Oh he’s that Tesla guy, right?” Musk is the face of the company, and everything that he says or does is, as a result, then associated with the Tesla brand. These actions can either improve, or worsen the public opinion of Tesla which, if it gets low enough, could cause Tesla’s sales to dip quite a bit. In addition to impacting their brand, Musk often hinders the company directly through his actions and words. But not all of what Musk does is bad. If that were the case, then he wouldn’t still be the CEO. Musk has brought Tesla to where it is today, and without him, Tesla wouldn’t be where it is today.

Musk’s Hurt on Tesla

In the past, Musk has said and done a lot of questionable things that reflect poorly on the company that he represents. Most recently, Musk made headlines due to his feud with the SEC. Just weeks prior to that, Musk made headlines with his controversial actions on the Joe Rogan podcast, and prior to that, he made headlines for calling a retired British rescue diver a “pedo guy”.

A “twitter score”, a formula created by Kwan-Chen Ma, indicates that what Musk puts on twitter has a direct relationship with the share price. He states that for every 1% increase in “twitter sentiment”, institutions will increase their holdings by 150,000 shares and vice-versa. Every time Musk tweets something that is bad for Tesla and his image, such as the infamous tweet of going private, or he causes bad articles and images to be spread around, such as images of his infamous moment on the Joe Rogan podcast, the share price is directly affected by the twitter score. Negative public opinions of Musk cause negative articles to be written of him and Tesla, causing the public sentiment to be lowered even further. Musk seems to just be feeding into this cycle even more with his tweets.

Source: Cleantechnica

Another way Musk has hurt Tesla is by setting incredibly high goals for the company, that they then fail to meet. One example of this is his projections for Model 3 production, setting a weekly production of 10,000 vehicles by the end of 2017. Tesla reached their first week of 5,000 Model 3s during the last week of quarter two, but that rate hasn’t yet proven to be sustainable. These high expectations also contribute to a lack of positive articles about Tesla. Some great achievements by Tesla are overshadowed by their failure to meet the unreasonable expectation that Musk has given the market.

Part of the previously mentioned SEC agreement is that Tesla must appoint two new independent directors, and he is required to step down as the chair of the board of directors. This person would have the ability to limit Musk in terms of what ideas he chooses to pursue and how he executes them. For example, if Elon Musk wanted to build an electric school bus, the new director would be able to say no and shut down the idea. This reduces Musk’s creative freedom and, potentially, the direction of the company as a whole, as Musk seems interested in creating all types of vehicles, from supercars to semi trucks. In addition, Musk has described himself as someone who likes to micromanage everything in the company, and the new director would likely disallow him to continue running Tesla this way. If the new chair sees a way for Tesla to do something that they deem more fitting, they would be able to potentially change the way Musk produces cars or manages certain people. This new director would be able to completely change how Tesla is run and operated if they believe that it is the best for the company. This isn’t necessarily what is going to happen, but it certainly is possible.

How Important Musk is to Tesla

There’s no denying that Musk is dedicated to his company, one of Musk’s claims to fame is nights spent on the floor of the factory, working all through the night. Musk is also the lead innovator at Tesla. Musk talked about, in the previously mentioned Joe Rogan podcast, how his mind is wired differently than his peers, explaining that he is constantly thinking of new ideas. Musk hinted at an electric plane design that he has been designing in his mind, it may end up as a Tesla product in the future. He also teased many other product ideas for Tesla. Musk said there currently wasn’t enough time for him to pursue some, but others are currently in the works at Tesla unbeknownst to the public. This innovative mind is behind almost all of the Tesla vehicles in production, or soon to enter production.

Tesla’s User Interface (UI) is likely the most advanced UI in any vehicle. It has also been called the most fun and useful by John McElroy and has many “easter eggs” that add to the drivers' enjoyment of the vehicle. Those easter eggs contribute to the “fun and whimsical attitude” that McElroy doesn’t believe the competition will be able to match. The UI seems to be a polished version of the chaos of Musk’s mind. It has some of his favorite old Atari games, the ability for the Model X to dance, and many other features, many of which Musk is responsible for. Musk gives the car a personality and strives to make it a “device of maximum enjoyment” (from the Joe Rogan podcast). Without Musk’s innovative mind at the head of each of Tesla’s new ideas, they wouldn’t be able to innovate years beyond their competitors.

Another thing Musk has been able to do for Tesla is turn it into a household name. Tesla has never spent a dime on advertising its products, yet every new vehicle it makes has incredible hype around it. What other company has created a semi truck that is almost as well known as their sedans, SUVs, and supercars. People all over the world idolize Musk, and his following has been described as “cult-like” numerous times. No other man could have created the following that Tesla has; this huge following is incredibly important for their business to survive and thrive in the future.

Which Side of Musk Carries More Weight

Now, it’s time to consider, does Musk truly do more harm than good for Tesla. The answer isn’t black and white, but it seems that overall the answer is no. Musk has made Tesla the company that it is today, without him at the helm, Tesla wouldn't be the same company it is today. But, on the other hand, Musk has, especially recently, caused great harm to the Tesla brand and stock, causing many people to lose money on the stock. It seems that in the past couple of months, Musk has undoubtedly done more harm to Tesla than anyone else. He can’t blame the short sellers for the dropping price, as he is the one who has put himself and the brand in bad situations.

However, without Musk, the company would most likely lose an immense amount of support from the loyal Musk fans who show incredible support for their business. In addition, since Musk isn’t just a face of the company and actually contributes a great deal to what the company is producing, getting rid of him would be getting rid of their idea-maker. Musk isn’t as easy to replace as Papa John CEO, John Schnatter, was and Schnatter got removed for less than Elon has done. As Tesla states on its website, “Elon Musk… oversee[s] all product design, engineering and manufacturing of all of the company’s electric vehicles, battery products, and Solar Roofs.” Losing Musk would no doubt be a huge blow for the future of Tesla, one that they would never be able to fully recover from.

In terms of Twitter scores, part of the SEC agreement is that Musk’s tweets must be monitored. I’m sure he wasn’t a fan of this at all, but it should be able to greatly improve Tesla and Musk’s online opinion, which matters a great deal. The independent directors, also brought in because of the SEC agreement, could also limit Musk’s creativity and his tendency to act immediately. Although this could slow down Tesla in creating and announcing their ideas, it will be better for the company in the long term because it could humble Musk and teach him how to act more like a traditional CEO.

Overall, Musk has helped Tesla grow to what it is today, but, in recent months, he has almost sought to destroy it. In the long run, Tesla will recover from this, but only under the leadership of Elon Musk. This isn’t to say that some more restrictions around his public behavior should be made, but he needs to remain as Tesla’s CEO for them to continue and create the best products they can. As an investor, buying right now might could best move as the SEC case is still almost completed, and buying the stock soon could yield some high and quick profits as Musk returns to levels of normality. Tesla has many exciting things in the coming years, such as Model Y, the Tesla Semi, and the Shanghai Gigafactory, and Musk is the person to see these ideas through.

Disclosure: I am/we are long TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.