Elon Musk and Tesla have dominated the business news over the past several months. Observers and analysts have watched closely to see if Tesla can successfully ramp up production of the Model 3 sedan. The ability to scale production will prove essential in the organization's efforts to achieve profitability. The company has little chance to turn a profit, regardless of the appeal of the brand and the quality of the vehicles, if it cannot produce higher volumes so as to lower manufacturing cost per unit. Of course, more recently, Tesla has made news of a different sort, as many people have questioned Musk's ability to manage an increasingly complex organization. Late-night tweets, strange comments with regard to the Thai cave rescue, surprise pronouncements about taking the company private, and even smoking marijuana on a podcast have all captured a great deal of attention. People wonder if he can keep up the long hours, as well as whether he can retain executives on his team. He has churned through a great deal of managers in the past year, just as he needs the ability to delegate key operational responsibilities to trusted subordinates.
For me, the interesting part about Tesla's situation has to do with the way people value the company. How can a firm lose tons of money quarter after quarter, yet until recently maintain a market value over $50 billion? Faith. Lots of it. Investors believe that the company has a promising future. In particular, they have a great deal of faith in Musk himself. Investors have viewed him as a visionary, and they expect strong future cash flows because of the strong brand that he has built and the lead he has taken in building electric vehicles. However, in these cases, where so much of the market value is predicated on the faith in one leader, much risk comes along too. What if investors lose faith in the leader? How damaging will that be both to the firm's market value and its ability to raise additional capital? In the case of Amazon, the firm lost money for years, yet investors and analysts retained a great deal of faith in Jeff Bezos not simply as a visionary, but as an operational leader. They believed that he could execute. Musk faces an inflection point now. Can he inspire renewed faith among the investor community? Can he regulate his behavior so as to make people comfortable with his ability to lead the organization as it scales production substantially? Can he build a management team that is willing and able to work for him, despite his micromanagement tendencies? Amidst all the numbers and the debates about production costs, margins, and the like, the future of Tesla rests in large part on the "soft stuff" - the behavior of a leader and the faith of others in that leader. Small stuff matters. Musk has to recognize that his every action and word will be scrutinized closely, fairly or unfairly. Words and small deeds do matter, regardless of how beautiful the car looks and how well it drives. Meanwhile, the Board has a crucial responsibility. The directors must exercise their duties and obligations vigorously, to insure that Musk addresses some of his shortcomings quickly and effectively. The coming weeks and months are sure to be fascinating to watch.
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