Blue Sail Consulting: Business Planning, innovation, And Execution

Mario's Corner - October 2018.

Tesla's Current Challenges, And The Actions That Elon Musk and Its Board of Directors Can Take To Solve Them. 


Welcome to my firm's website.  I like to share my thoughts on Strategy,

Business Planning, Innovation, and Execution here on a monthly basis.

 

To access previous columns, hover your pointer over "Mario's Corner" in

the navigation bar and select the column you would like to read.  In a mobile

device browser, these are listed under "Mario's Corner" in the menu.

-------------------------------------------------------------------------------------------​-----------------

 

Having worked over the past few years in the Electric Vehicle and Clean Energy space during consulting projects with a robotic Electric Vehicle recharger start-up and others, I have been following Tesla's challenges and successes with interest.


I have always admired Elon Musk but have had concerns about his management approach.  On the one hand, he is willing to take risks that will advance Tesla's successful position.  On the other hand, the risks sometimes do not seem to be calculated and his Board of Directors does not seem to have any control over his actions.


​To understand Tesla's current challenges, it is important to understand Elon's and its history.  Tesla, an American start-up based in Palo Alto, California (in the heart of Silicon Valley), was founded by Martin Eberhard and Marc Tarpenning in 2003.  Their goal was to create a company that could sell affordable electric cars to the average American consumer.  Their actions were motivated by the recall and destruction of the EV1 electric cars by GM in 2003.  Martin and Marc felt that GM had taken this action as a result of pressures by the oil companies including Exxon and the OPEC cartel, who were afraid that electric vehicles (EVs) would destroy the internal combustion engine cars and gasoline profit model, but that there was a large unmet need for EVs.


Elon Musk joined the company one year later in 2004 and led the Series A funding round.  He had founded various companies and made his fortune before joining Tesla, including Zip2, a software company acquired by Compaq, and PayPal, which was acquired by eBay in 2002.  Thus, he was able to provide the majority of the $7.5 Million required in this round.  In 2007, the Board of Directors asked Eberhard to resign as CEO and replaced him with Elon.  A subsequent lawsuit was brought by Eberhard, claiming that Elon wanted to "rewrite history."  It was settled out of court.


In Tesla's early years, Elon concentrated in manufacturing a $70,000+ EV that attracted media, industry, and consumer attention and excitement due to its sporty, futuristic appearance and long-range battery (compared to other EVs at the time).  He also insisted these EVs include a proprietary, fast-charging port.  He then installed a network of chargers that could only be used for Tesla's EVs throughout the U.S.  A little-known-fact of these early years is that Tesla obtained multiple multi-million-dollar grants, including a large one from the U.S. Department of Energy and many from the California state government - without which the company would have gone bankrupt.


Recently, Elon tweeted that he was planning to take the company private and that he had received funding to achieve this.  He later retracted this statement. Additionally, he appeared in a popular podcast called "The Joe Rogan Experience" where he smoked Marijuana - which is legal in California.


​Due to his "going private" tweet, the Securities Exchange Commission (SEC) sued Tesla and Elon to try to bar him from serving in any executive capacity or to sit in the Board of Directors for any company - including Tesla.  On September 29, 2018, Tesla and Elon settled with the SEC, agreeing to pay $40 Million (from Elon's personal funds), and also to install stricter governance guidelines and to appoint some independent directors to the Board.  This last demand was made because the SEC felt that all current directors are too closely associated or are easily influenced by Elon.


​Having sat on multiple Boards over the past few years, I have two recommendations for the Tesla Board that should prevent future issues with Elon's and Tesla's actions:


1. ENSURE BOARD INDEPENDENCE AND INSTALL GUIDELINES THAT THE CEO IS REQUIRED TO FOLLOW - The Board needs to be independent and guide the CEO (in this case, Elon) to install regulations that will prevent a recurrence of these issues.  Although Elon is a brilliant CEO, this is no longer a small start-up.  Through its acquisition of Solar City and its subsidiary, SpaceX, Tesla hires a large number of employees and has many shareholders (myself included) who could be hurt by Elon's impulsive actions.  At the same time, Elon is still the best CEO the company can have.  Thus, it is the Board's responsibility to ensure that regulations are put in place, so Elon understands that his actions are closely observed by the financial community and the public.


2.  INSTALL A PROCESS FOR FIDUCIARY OVERSIGHT AND START DEVELOPING A SUCCESSION PLAN - The Board needs to ensure that it bears responsibility for the actions of any Tesla executive.  This means that it has to oversee the actions of anyone associated with the company - including Elon.  Additionally, it needs to put in place a succession plan that will ensure the company can continue once Elon retires or moves on.  Although this should not be perceived as an effort to push Elon out, the Board needs to ensure that a panic mode is not triggered if there is again another incident that could jeopardize the leadership, or the company, as just happened.


The bottom line is that Elon, like Steve Jobs, is a unique genius but needs to understand that, due to the size and success of Tesla, it is time to start acting with maturity in managing a Fortune 500 company.  By doing this, Elon can ensure Tesla's (and his) continued success.

​------------------------------------------------------------------------------------------------------------------------------------------​​

Please do not hesitate to call me at 1 (617) 391-0347 or e-mail me at mariocastaneda@bluesailconsulting.com to talk about this or any other subject.  I always like to hear from clients and readers.  

 

Also, please don't forget to read my interview with BostonVoyager magazine.  To read it, click here.

 

Please contact us if you want to find out how we can help you to maintain a successful, entrepreneurial culture, while at the same time ensuring the future success of your company.

 

I look forward to seeing you again here in November!

 

Best Regards,

 

​Mario