Edward Niedermeyer is the author of Ludicrous: The Unvarnished Story of Tesla Motors. He is co-host of the Autonocast podcast and host of the Ride AI podcast.
Tesla shareholders on Thursday ignored the courts and approved a $50 billion compensation package for Elon Musk for a second time, putting the company's future in the hands of a man whose myth-making business strategy is proving unsustainable.
Ever since Mr. Musk took over as CEO, Tesla has had two competing identities: a car business bound by the harsh realities of making and selling a complex product, and the madman's dream factory that fueled Tesla's enormous valuation. The two have been more or less complementary, and Mr. Musk's capital-markets wizardry has masked periodic stumbles in the cutthroat auto business.
Even as Tesla's core business struggles and Mr. Musk's hype reaches beyond pure fantasy, damaging the company's reputation and embroiling it in legal battles, shareholders of the world's most valuable automaker are banking on the second identity and holding the company accountable for the risks of Mr. Musk's unbridled fantasy.
Beginning in 2013, long before the term “meme stock” existed, Mr. Musk had been creating a template for a new kind of social financial phenomenon at the intersection of tech hype and online virality. A mercurial manager and less of an engineer than he likes to admit, Mr. Musk's primary value to Tesla was his skill at inspiring faith in the company's ability to control the future of the auto industry and achieve extraordinary technological goals.
What began as a tendency to exaggerate laudable, achievable goals, like his 2012 promise to make all Superchargers solar-powered, has spiraled out of control. Beginning with his 2016 decision to charge customers for a yet-to-be-realized fully self-driving feature, and accelerating into current fantasies of building robotaxis and general-purpose humanoid robots, Musk's myth-making to boost his stock price has left reality behind. Musk himself now says that nearly all of Tesla's value is based on the development of self-driving technology, which is reportedly the focus of a federal fraud investigation, not to mention countless civil lawsuits.
Not coincidentally, Musk's hype escaped the strict constraints of reality at roughly the same time that his corporate power began to obscure any pretense of independent governance at Tesla. The tipping point came in 2018, when, as The New York Times reported, Musk asked Tesla's board to “praise him for his honesty” after the Securities and Exchange Commission filed fraud charges against him for claiming that he had “secured funding” in a fictitious privatization deal. That same year, the board approved Musk's $56 billion compensation package, structured around market cap rather than operational challenges, setting the stage for the sci-fi fantasy carnival that followed.
And for much of the past five years, Tesla's business challenges have more or less resolved themselves. The Model Y crossover took center stage just as EV hype was peaking, and COVID-19 supply-chain constraints created structural shortages in many auto markets while those shortages were still fresh in memory, allowing Tesla to price whatever it wanted. But as general auto shortages were replaced by a glut of luxury EVs, Tesla's robust sales and profits faded.
With Tesla's core auto business no longer showing signs of limitless growth, Musk's hype-focused leadership is increasingly viewed unfavorably. Criticism of Musk's leadership has been further fueled by his acquisition of Twitter and his accompanying descent into culture-war rhetoric, which is seen as both a further distraction and an unnecessarily divisive marketing strategy that will only tarnish Tesla's once broad and inclusive brand.
And instead of expanding Tesla's market with a more affordable mass-market product, Musk chose to invest in the equally controversial Cybertruck, a vehicle that in every way reflects a desire to fulfill a meme instead of seriously competing in the lucrative full-size truck market.
Meanwhile, eight employees who were fired in 2022 filed a lawsuit against SpaceX and Musk this week, alleging that the CEO “sexualizes women” and retaliates against “those who challenge his 'Animal House' environment.” The day before, The Wall Street Journal detailed Musk's history of romantic relationships with employees, including a former intern. (A SpaceX executive told the Journal that the company's reporting painted a “completely misleading story” about the company's culture.)
For anyone who has followed Tesla since its idealistic beginnings as a “mission-driven” organization dedicated to the ideal of accelerating the transition to sustainable energy, this outcome is a tragic departure from what the company was once envisioned to be. Anyone rooting for a broader transition to electric vehicles should be disheartened by this outcome. Tesla's promoter and mascot has become a symbol of excess and irresponsibility, rather than the true progress he ushered in.
The good news is that the broader transition to EVs no longer depends on Tesla or Musk, even if Musk's ego eclipses Tesla's. Globally, dynamic Chinese automakers have already taken over technology and product leadership from Tesla. Incumbent automakers are releasing a succession of sleek EVs that rival or rival Tesla. Even post-Tesla upstart Rivian is surviving without relying on Musk's hype. They are developing a new generation of stylish, high-tech cars that will keep the market moving forward.
The EV division has done something Tesla investors have struggled to do: move forward. Just as Henry Ford pioneered the modern auto industry with the Model T and was left behind by his own exaggerated legend, Musk's abilities were helpful in certain pioneering times but later proved harmful.
Ford ended up being pushed out of the company it founded by its majority-owned family, forcing it to transition to a new auto industry paradigm that was just beginning to mature. A recent shareholder vote has all but eliminated any chance of a similar scenario happening at Tesla, with the world's largest automaker now inexorably bound to the whims of a mad kingmaker.
