It's not uncommon for high-performing companies to have demanding bosses, but does Elon Musk take it too far?
A string of senior staff have left Tesla over the past year, many driven by burnout and a distaste for Musk’s politics, according to a report in the Financial Times this week.
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Separate analysis from Business Insider suggests at least 10 of Musk’s direct reports have left Tesla over the past year.
As one of the Magnificent Seven, Tesla is frequently one of the top stock picks among DIY investors on investment platforms, though it dropped out of Interactive Investor’s rankings in August.
The value of company culture
As well as being essential to employee wellbeing, strong company culture helps ensure low staff turnover and stability of operations. Most people also believe that happy employees feel incentivised to do their best work.
Investors have previously expressed concern that Tesla’s workplace culture is not conducive to business success. In 2023, 17 long-term investors with $1.5 billion in Tesla shares wrote to the board of directors expressing their concerns.
The letter pointed to a “toxic culture” at Tesla factories, citing lawsuits on racial discrimination and sexual harassment. It also accused the board of failing to ensure that Musk was appropriately focused on Tesla.
“The Board’s meager oversight of CEO Elon Musk and other critical aspects of corporate strategy, including the company’s approach to human rights and labor rights, exposes the company to substantial legal, operational, and reputational risks, thereby jeopardising its long-term value,” the letter said.
The investors also argued that “poor workplace equity practices are linked to lower returns”, and pointed to ongoing challenges at Tesla including the company’s loss of market share.
Culture can be difficult to quantify, but data suggests it correlates with strong financial performance.
Each year, US business magazine Fortune compiles a list of the 100 best companies to work for. These companies have outperformed the broader market by a factor of 3.5 over the past 27 years, according to data from index provider FTSE Russell.
Musk and Tesla's valuation
Healthy company culture is a vital component of a thriving business but, at the same time, Musk has been central to Tesla’s success. Many believe his maverick personality and disdain for process have helped Tesla achieve disruptor status.
Most of the investors who criticise Musk’s behaviour are not calling for him to step down. They want him to step up.
An investor group with almost 8 million Tesla shares wrote to the board in May this year, demanding that Musk spend a minimum of 40 hours a week at the company. The letter was far from complimentary but at no point suggested a resignation.
Tesla is also willing to shell out huge amounts to keep Musk involved. In September, the board proposed awarding him a $1 trillion pay package over the next decade if he hits certain targets.
Investors have received the news positively. While recognising the significant risk he poses, many think he still adds value.
“The recent focus on Elon Musk’s $1 trillion compensation package… has eliminated an overhang on the stock,” Deutsche Bank analysts wrote in a research note. “Assuming passage, this package would eventually allow Elon Musk to gain 25% voting control of the company, significantly lessening the likelihood that he would leave Tesla.”
Goldman Sachs analysts compared the deal to a similar (albeit less lucrative) one from 2018. “We believe investors attribute some of Tesla’s historical outperformance to the 2018 award, which also set several ambitious operational targets and milestones,” they said.
Tesla shares rally
Recent sentiment around Tesla has been positive, with its share price up 35% over the past month alone following a rough start to the year. This has sent the stock to $445 at market close on 30 September – not far off the record high achieved in December ($480).
Musk now appears more focused on Tesla. As well as the promise of a hefty pay package, he purchased $1 billion more Tesla shares in September – a vote of confidence in the stock.
That said, challenges remain. Around three-quarters of Tesla’s revenue comes from its electric vehicle business, and sales have been falling as Tesla loses market share. Deliveries declined by 13% year-on-year last quarter.
Should you invest in Tesla?
Tesla’s workplace culture and Musk’s politics are potentially enough to deter socially-conscious investors based on ethics alone. But is Musk too much of a liability even for those focused solely on the financials?
Tesla is expected to publish its latest delivery numbers on 2 October. FactSet consensus estimates point to 448,000 units delivered in the third quarter. This would constitute a year-on-year drop of around 3%. While this is hardly good news, it is less negative than the 13% drop seen in the second quarter.
Optimists will point out that new models could boost sales going forward, including the revamped Model Y that launched in European markets in June. A new model with an extended wheelbase (the Tesla Y L) was also recently launched in China.
Musk also continues to focus on other areas of Tesla’s business – including automation in the form of the robotaxi launch. Whether you see this as a good or a bad thing depends on your outlook.
Those who view Tesla as an electric vehicle business may prefer Musk to focus on the traditional part of the business which makes up the vast majority of its revenues. Those who see it as an AI play more than a car manufacturer may be sold on the promise of self-driving cars, robots and the growth opportunities that come with these.
Even if you believe in the overall vision for automation, there are practical hurdles. Musk is famous for pushing deadlines back.
“We continue to forecast Tesla's full robotaxi service to launch in 2028, two years behind management's guidance for a 2026 launch,” said Seth Goldstein, senior equity analyst at Morningstar. “We define a full launch as a robotaxi with no Tesla employees on board and no geofencing. Currently, robotaxis in testing have both.”
When it comes to valuations, investors take a risk by buying in at current levels. Morningstar views Tesla shares as “significantly overvalued”. Its fair value estimate is $250, versus a current share price of $445. Goldman Sachs rates the stock “neutral” with a price target of $395, also suggesting shares are overvalued at their current price.
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