Tesla's Board Needs More Manufacturing Expertise

Shenzhen. China - November 11, 2016: Showroom Tesla with a car in Shenzhen o plaza mall

Elon Musk, like visionaries before him, is smart, even brilliant and certainly larger than life for many. He has built several companies simultaneously, a feat not for the faint hearted. However, like outstanding entrepreneurs before him, there comes a time when breaking all the rules has adverse effects. For Musk and Tesla, this time is now.

Tesla , the publicly traded company has revenues of $11.8 billion, sales around the world and over 37,000 employees. Although Elon Musk is the major shareholder, he is not the only shareholder. Given these facts, as well as the trials and tribulations of late, the company needs leadership. Possibly leadership at many levels but certainly leadership at the top.

At the end of September it was reported that Tesla and Musk reached a settlement with the U.S. Securities and Exchange Commission that included Musk stepping down as Chairman of the company. This should be viewed as a move in the right direction. The question now becomes, who should take his place?

Speculation is that James Murdoch will become the Chairman of Tesla. Murdoch, son of media mogul Rupert Murdoch has been on the board of Tesla since last year. As it pertains to his potential candidacy though, it is not his lack of relevant industry experience that is disconcerting but rather the fact that he and Musk are reportedly friends. Given the presumed kinship, can Murdoch have the independence and authority to regulate Musk? It should also be noted that Murdoch had to step down as Executive Chairman of News International in 2011 after a phone-hacking scandal. The good news though is that he doesn’t need the fame and money that will come with the role. But is this enough to ensure that he has the wherewithal to impose some restraint on Musk?

As Chairman, Murdoch will also oversee the Tesla board which has its own set of challenges. A total of nine directors including Musk and Murdoch, the Tesla board has both accomplished executives as well as diversity in terms of gender and ethnicity. What it does not have however, is anyone with relevant industry experience.

According to Tesla’s 2017 annual report: “our core competencies are powertrain engineering, vehicle engineering, innovative manufacturing and energy storage.” Further “our mission is to accelerate the world’s transition to sustainable energy.” So, where on the board is this expertise?

Tesla’s board has media, entertainment, and investing experience in spades. However, as a highly complex manufacturing company with heavy focus on new technologies as well as R&D (Tesla spent over $1.4 billion on R&D in FY2017) it is disconcerting that no one on the board aside from Musk himself has worked in these arenas. In March of this year Tesla recalled 123,000 Model S vehicles because of a powertrain steering problem. Can a board without manufacturing experience fully understand and efficiently resolve this type of costly and risky problem? What about complex supply chain experience? Or environmental and regulatory knowledge? Even China expertise is missing and could be valuable as 18% of Tesla’s revenues come from that country.

Further, most on the Tesla board are not actually independent. There is Kimball Musk, Elon’s brother, Brad Buss who former Chief Financial Officer of SolarCity, a subsidiary of Tesla, and Ira Ehrenpreis an investor not only in Tesla but in SpaceX as well. Steve Jurvetson who is on a leave from the board due to a sexual misconduct investigation is another of Musk’s personal friends.

These deficiencies at the board level have allowed Musk almost unbridled rein over the company. While it undeniably led to Tesla's success to date, it also contributed to the current situation the company find itself in, including its lack of profitability. The financial community has grown increasingly concerned about Tesla's cash drain and overall stability, which was exacerbated in recent weeks.

So, given all of this, what befits Tesla at this stage? Most importantly, Tesla needs independence of thought and directors with the clout and ability to influence Musk. Ideally, clout will not only come from prominence and name recognition, but rather from a solid set of relevant experiences. This may be manufacturing, production, supply chain, power, engineering, regulatory or even retail (Tesla operates 330 stores and service locations.) International experience, as previously mentioned would be helpful as would clean energy know-how. Speaking of energy, storage and solar energy systems skills and knowledge are sensible as well. As incredible as Elon Musk may be, he must accept that, like many mere mortals, he too has limitations. Knowing how to create a team with relevant and complimentary skills and experience may be the toughest challenge Musk has yet to face.