For Tesla investors, Elon Musk’s involvement with Donald Trump was a two -phase disaster – one in slow motion, and the other in a dizzying advance. During the 130 days when Musk was at the head of Doge (a Trump government program), a crusade whose stubborn aggressiveness practically defined the spirit of administration in the early months, Tesla’s head rage European customers by supporting far right politicians.
As a result, sales fell into countries such as Germany and France, while strong competition in China has reduced their market share. Musk, instead of dealing with the growing Tesla problems, intensified his absence by devoting departments and reducing personnel directly from the White House.
As worse as this episode for Tesla was, he at least offered a possible advantage. “Even before Doge, Musk was already too involved with many projects – Spacex, Neuralk, X and other initiatives. Then he still decided to dive into one more,” says Eric Talley, Professor of Law and Business at Columbia University. “But being in the White House was also a kind of insurance policy for Tesla … Being close to the center of decisions was a huge potential advantage.”
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Now, says Talley, Musk has turned this “insurance policy” into a responsibility-the threat that the government can penalize Tesla, or the best scenario, simply ignore it. When Musk left Doge on May 30, with all the pomp of the farewell in the Oval Hall, Tesla’s shareholders still had little to celebrate, as the CEO was not abandoning his numerous responsibilities to focus again on the manufacturer in trouble.
Then came the explosion of the fight between Musk and Trump on June 5, triggered by Musk’s fierce criticism of the president’s main budget project. This has placed Tesla overnight in a risk situation-not only for its weakened finances, but also for the series of insults directed at its former political ally, which can cause Trump’s retaliation and threaten Musk’s permanence as a leader, key to the company’s billionaire valuation.
“What has changed in the last 24 hours,” says Talley, “is that musk not only gave up the insurance policy of being a CEO close to the government. He has hired an anti -pelice. Anytime can explode in scandal on social networks, putting Tesla on the line of fire.” He notes that Tesla’s competitors face the same obstacles – such as the end of the subsidies to electric vehicles proposed in the so -called “great magnificent project” – but that the wear and tear of provoking the president “is a target that competitors do not have.”
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In fact, the day it exploded, – the biggest loss in a single day in the company’s history. Although the next day has recovered about one third of the losses, the paper is still 40% below the peak reached in mid -December.
Musk’s scandalous behavior would usually take him from the position of CEO
Charles Elson, founding director of the University of Delaware University Corporate Governance Center, and one of the leading experts in administrative councils and ethics, told Fortune that in any other open company, Musk would have been fired – and this would have occurred well before this new storm. “If he called himself Joe da Silva, he would have been sent away in the blink of his eyes,” says Elson. “The reputational damage he caused by removing so many clients by entering politics with Doge is huge. It was a disaster. No other advice would have let a CEO get involved like this. There is no time to be CEO like that!”
What keeps Musk in office is his iron control over the board, says Elson. He points out that Musk holds 30% of the actions and that his influence goes beyond that, due to the loyalty gained, in part, through the granting of generous options that made several directors very rich. Elson estimates that it would be extremely difficult for dissatisfied shareholders to overcome lawsuits against directors who could try to force Musk’s departure. “The way to gain this kind of action against counselors is tortuous and full of obstacles,” he says. “The reincorporation of Tesla from the state of Delaware to Texas made everything even more difficult. It was a race to the bottom of the well – and they got there.” For Elson, Musk cannot be forced to leave – and won’t leave unless he wants. “And there is nothing that no one can do about it.”
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Still, the shareholding of Musk, which is the source of its power, and its connection with Tesla in the future, are being tested by historical decisions in the courts of Delaware. Last year, court decisions nullified the $ 56 billion stock package granted to Musk by the board in 2018, which represents two thirds of their participation. Tesla now uses to try to restore this compensation. If the Supreme Court of Delaware maintains the annulment, Tesla will surely seek to reintegrate this payment – but this way now has much higher risks.
According to Talley, the council, under the law of Texas, could try to restore the package unilaterally or submit it to a vote by shareholders. He believes that this last option now seems more attractive to directors, considering the possible negative reaction to reward Musk so generously as Tesla faces difficulties – largely caused by their own actions. “Maybe the advice prefer to have a rejection,” he adds.
A negative would open another worrying scenario: “If there is a vote and it goes against it, you have a succession problem. And you don’t want a CEO to get avenge from the company,” something that Musk’s unpredictable personality could motivate.
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It is also unclear how Musk will react whether the Supreme Court of Delaware decides against him – the result would be the same: he would hold a much smaller part of Tesla, and his motivation to rebuild the main source of his fortune would decrease considerably.
Despite the fall, Tesla is still strongly supported by Musk’s “magic”
Tesla maintains a gigantic valuation thanks to Musk’s iconic status and promises that he will deliver autonomous driving technology that will turn the car manufacturer company into a highly lucrative technology giant. As I wrote after the results of the first quarter, Tesla actually lost money selling cars and batteries, and only made a profit by selling regulatory credits.
Its “real” profits from major car and battery operations in the last four quarters have only $ 3.5 billion – against $ 12 billion in 2022. With a P/L of 30, three times the automotive average sector, Tesla Valeria, based on the foundations, about $ 100 billion. But even after the recent drop, its market value is $ 960 billion. Thus, more than $ 800 billion is the result of what I call “Musk Magic Award” – generated by its promises of epic innovations.
If Musk left, much of this magic would also disappear. And maybe it’s already disappearing. For Tesla’s shareholders, the situation is bad anyway. If Musk leaves and a new leader assumes, the “halo” of genius no longer protects actions. If he stays, he keeps getting fights that stain the brand and divides his time among half a dozen endeavors he may find more exciting. As Elson says, “Anyone would have been fired after that, but he thinks it can’t be. He has this aura that makes him feel untouchable. It’s a worship status that seems to protect him and makes people find it normal for him not to act conventionally.”
But Elson warns: As Musk’s behavior becomes increasingly scandalous, the weight he imposes on Tesla – now and what investors already perceive as an inevitable future – is becoming unsustainable. We have just seen a shocking example of how fast this can happen – and how myth can undo in a moment.
This report was originally published by Fortune.com
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