Half an Elon Musk is still better than none

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The board of Tesla is not looking to replace Elon Musk as chief executive. It said so on Thursday, in response to a Wall Street Journal article that had stated otherwise. The point is moot, though, because it shouldn’t even try.

Musk is, famously, not just an automotive executive. He is also a pie in the face of corporate governance advocates. They have, for decades, cooked up policies intended to make company directors and executives better at creating value. Tesla has flouted some of their most sacred tenets, and shareholders who vote at its annual meetings have mostly approved.

To whit: he has had multiple jobs, running rocket-maker SpaceX and artificial intelligence outfit xAI even before he went to head Donald Trump’s so-called Department of Government Efficiency. Companies may welcome executives going into public service. JPMorgan, for example, allows for senior folks who go to Washington to keep their bonuses. But usually such roles are consecutive rather than concurrent.

Musk has also written numerous cheques he has subsequently failed to cash, from vehicle delivery targets to the arrival date of fully self-driving cars. Then there was the $56bn bonus the board approved amid what a judge called ‘lackadaisical’ oversight — a word Tesla chair Robyn Denholm has rejected.

Investors don’t, collectively, care about this. That the company currently has five independent directors, where the US average is nine, according to Spencer Stuart, has had little effect on the share price. Someone who parked $1 in Tesla stock 10 years ago now has almost $20. The same dollar in the S&P 500 is worth $3.

It’s not that corporate governance doesn’t matter. But there are times where other considerations predominate. There is an adage in banking that when the customer can’t pay back a $100 loan, it’s their problem; when they can’t pay back a $1bn loan, it’s the bank’s problem.

Something analogous applies to Tesla, in that Musk is too big to eject, and also too valuable. Take Tesla’s $11bn of forecast earnings for 2027, gathered by Visible Alpha. Even on an extremely generous multiple of 45, akin to luxury companies like Ferrari and Hermès, the result is a market capitalisation of $500bn, versus Tesla’s actual $884bn.

That suggests that the extra $400bn or so reflects the implied worth of Musk himself. That makes sense: without him, the company might make cars, but probably not humanoid assistants or connected robotaxis, all things investors value today as if they were real.

Besides, it’s because of Musk that Tesla’s valuation benefits from the support of hordes of exuberant retail traders. As Barclays analysts have pointed out, the stock has at times traded more in line with bitcoin than the wider market. The old rules of carmaking don’t apply to Tesla; like it or not, nor do the rules of good governance.