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Would Tesla be Better Off with a New CEO?

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The Securities and Exchange formally announced on Thursday afternoon that it was filing suit in federal court charging Tesla (TSLA - Free Report) CEO Elon Musk with fraud in connection with his August tweet that he was considering taking the company private at $420/share and had “funding secured.”

Shares of the electric automaker fell more than 11% in after-hours trading on Thursday and have remained at the depressed level of around $265/share through mid-day on Friday.

It was reported on CNBS on Friday morning that Musk and the SEC were close to a deal in which he would pay a “nominal” fine, appoint two independent directors to the board of directors and avoid any admission of guilt, but that Musk backed out of the deal on Thursday morning, presumably because it would also bar him from acting as Chairman of the board for two years.

The SEC suit seeks to bar Musk from acting as an Officer or Director of any public company for an indefinite period of time and also to pay a fine.

Tesla Without Musk

Almost no one doubts that the success of Tesla so far has been largely due to the vision and efforts of Elon Musk. Though he is often credited as a “founder” of the company, he actually joined Tesla during it’s first year of existence in 2004 as a “series A” investor and became CEO in 2008.

Musk successfully guided the company through several rounds of additional financing and a 2010 IPO that raised $226M in additional capital. Tesla has gone from producing a roadster in limited quantities as a “proof of concept” for the modern electric vehicle, to the popular but very expensive Model S and Model X, to the recent effort to deliver the mass-market Model 3 electric vehicle to more than 400,000 waiting customers.

Musk’s unique vision and drive have created one of the great American success stories of all time, but those qualities have been a double-edged sword. The same willingness to dispense with convention and challenge conventional thinking that has allowed him to take Tesla so far so fast has also allowed him to make some public decisions that range from merely head-scratching to outright bizarre.

Most investors would have a hard time imagining Jamie Dimon, CEO of JP Morgan (JPM - Free Report) or even the charismatic and effusive Mark Benioff, CEO of Salesforce (CRM - Free Report) , tweeting about buyout strategies or smoking marijuana in a public forum.

It certainly remains too be seen how the SEC suit will play out, and some other form of settlement is still a possibility, but it’s clear that there’s a real possibility that Musk will not be CEO of the company in the future, either as a result of him voluntarily stepping down or being removed by legal action.  

So what could Tesla look like if Musk was no longer CEO?

It might be better.

Musk’s particular gifts seem to be creativity and drive, but his behavior has rarely been “CEO-like.” It’s not difficult to imagine him in a creative management role at Tesla that doesn’t involve interacting with the public about the day-today nuts and bolts of the business. That probably could have been achieved if he had gone through with the reported SEC deal, but unfortunately for Tesla investors, right now, Musk does not seems to have a realistic notion about his own strengths and weaknesses.

However this situation plays out, a Tesla that is creatively guided by Musk and his audacious plans, but also has the tempered corporate governance of a more traditional CEO, would have the potential to become the juggernaut that faithful Tesla investors have been waiting on for so long.

As has become the norm with Tesla, we’re going to have to wait a bit longer to see if they can pull it off.

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