On the surface—the surface in this case being Twitter—Elon Musk and Donald Trump could almost be the same person.
Trump uses Twitter to attack his enemies, real and perceived. Musk: Check. Trump tweets half-baked, whimsical schemes. Musk: Check. Both exhibit signs of paranoia and narcissism online, both promise nirvanas for the future, both back away from their most outrageous statements by claiming they were joking or misunderstood.
Both figures are admired, at least in some circles, for their willingness to breach norms of behavior—Musk is often depicted as turning the auto industry on its ear; Trump as utterly ignoring the way government and the White House have worked for decades. They’re both perceived as indispensable to their enterprises’ success—who can imagine the electric car company Tesla without Musk, or the Trump White House without Trump?
But there’s another respect in which Tesla CEO Musk and President Trump resemble each other, and it’s one that carries extreme risks for the enterprises they lead—in Musk’s case, Tesla Inc., and in Trump’s case, his administration. They’re both charismatic leaders with strong cores of followers who have, thus far, forced people outside their base to believe in their leadership skills. The question is, however, what will happen when confidence in their skills begins to crack?
The roster of charismatic leaders in politics who led their citizens over a cliff is long, and doesn’t require listing here. Business books and articles bristle with discussions about the qualities, virtues and dangers of charismatic leadership.
A couple of years ago, Joyce E.A. Russell of the University of Maryland listed some of their features in The Times: “They will discourage and censor divergent opinions and will expect that communication should be one-way…. They will strike back like bullies when they hear criticism (using the message that they ‘must defend themselves against attacks’). Their need for admiration and self-absorption can be so intense that it can lead them to believe that they are infallible. Instead of painting an optimistic vision for the future, they will prey on people's fears.”
The main problem with leadership by personality is that it carries followers sedulously along—right up until the point when they no longer follow. The turn can come in the blink of an eye. But sometimes it comes too late for the underlying enterprise to survive.
That may well be the issue confronting Tesla at this very moment. As measured by its stock price, Tesla’s success appears to be due almost entirely to faith in Musk—his vision for the company and the automobile market, and his ability to execute on this vision by building electric cars.
As we reported earlier this month, that faith translated into a market capitalization (at that moment) of more than $60 billion—more than General Motors, and almost as much as Ford and Fiat Chrysler combined. That was just after Musk’s now-notorious tweet about taking Tesla private, a transaction for which he claimed he had “funding secure.”
We can identify the factors that go into market capitalizations under rational conditions, none of which apply to Tesla. The three other car companies sold more than 2 million vehicles each in 2017 (GM nearly 3 million); Tesla sold fewer than 44,000. The other three were profitable; Tesla has never had a profitable year. The other three have identifiable markets and a fair amount of skill serving them, if not always flawlessly; the potential market for Tesla’s cars is still largely conjectural, and its ability to ramp up production to fill a market the size of GM’s, Ford’s or Chrysler’s is very much in question.
The only remaining factor is that Tesla has Musk, and the other car companies don’t. Is that enough, for the long term?
Calculating the net enterprise value of a leader like Musk requires balancing his benefits against his costs. The signs are that for Tesla, the former is slipping and the latter growing. Much of that shift in calculation is related to his going-private scheme.
Musk’s plan, including his fanciful target of $420 per share (a 20% premium over its price at the time) and his claim to have funding in place, all took his own board by surprise, not to mention shareholders. Investors responded warmly at first, sending Tesla shares up by about 11% on Aug. 7.
But latent doubts about Musk seem to have coalesced around the proposal, at the company’s expense. As we write Monday morning, the stock has lost more than 20% from its Aug. 7 peak. The Securities and Exchange Commission reportedly has launched a formal investigation into whether Musk’s tweet was tantamount to stock manipulation, especially since his later description of the transaction made clear that he did not have “funding secured.” At least three shareholder lawsuits have been filed, alleging losses related to the stock movement after the tweet.
These developments would force any normal corporate board to weigh the pluses and minuses of keeping Musk around. Tesla’s exposure to damages is hard to calculate just now, in part because the outcome and timing of the SEC’s investigation are impossible to gauge.
Matt Levine of Bloomberg estimates the potential litigation damages at $606 million at least, based on the price movement on and after Aug. 7. He weighs that against the $588 million Tesla earned in the second quarter strictly from vehicle sales, and observes that if the shareholder suits settle for his estimate, then “Musk’s tweet was as bad as shutting down the assembly line for three months. Sabotage!”
Tesla’s board is not normal, however. In addition to Musk, it includes his brother Kimbal and a passel of former business partners; only two of the nine members lack any discernible relationship with Musk. But it still must judge whether its CEO is becoming more of a burden than he’s worth. Job One for Tesla is getting the production line for its ostensibly mass-market Model 3 electric sedan operational at volume. Musk himself has described this task as his chief responsibility, yet he continues to throw up distractions, like sand in the gears. If the board decides he can’t be trusted to perform, its only choice may be to throw him overboard.
It has been an article of faith that losing Musk would mean the destruction of Tesla, but that may not be true. Tesla’s dilemma is reminiscent of the legend about the death of Charles Bluhdorn, the creator and boss of the 1980s conglomerate Gulf & Western. When Bluhdorn died suddenly, the expectation was that the company’s stock would crash. Instead, it soared—because it became likelier that the unwieldy conglomerate would be broken up, at a profit. If Musk gives way to an operationally minded CEO without his personal baggage, confidence that Tesla can finally deliver on its promises might also soar.
The situation facing Tesla parallels that facing Trump’s administration and his Republican Party. Republican officeholders have been loath to criticize Trump, even when his policies undermine their prospects in the midterm election this November. He’s created a dilemma for the GOP in the Midwest, where his trade war is costing farmers. In Florida, Gov. Rick Scott is campaigning for the U.S. Senate by distancing himself from Trump—a wise move in a state full of Latino voters.