Half Elon Musk is still better than nothing
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FT's editor Roula Khalaf chose her favorite stories in this weekly newsletter.
Tesla's board of directors does not want to replace Elon Musk as CEO. It said so on Thursday in response to an otherwise Wall Street Journal article. This is not a problem, though, as it shouldn't even be tried.
Musk is not only an automotive executive. He is also a faction in the face of corporate governance advocates. For decades, they have developed policies aimed at enabling company directors and executives to create value better. Tesla violated some of their most sacred purposes, and most shareholders who voted at the annual meeting approved it.
To Whit: He has multiple jobs, and before he was head of what Donald Trump calls the administration's efficiency division, he ran rocket maker SpaceX and AI XAI. The company may welcome executives into public services. For example, JPMorgan allows seniors to go to Washington to retain bonuses. But usually this kind of role is continuous, not concurrent.
Musk also wrote many checks that he subsequently failed to cash out, from the vehicle delivery target to the arrival date of a fully self-driving car. Then, in a place where the judge called “Lackadaisical” oversight, the board approved a $56 billion bonus – a term that Tesla chairman Robyn Denholm rejected.
Investors don't care about this. Spencer Stuart said the company currently has five independent directors, with an average of nine directors in the United States, with little impact on the stock price. 10 years ago, someone who parked $1 in Tesla stock, now has nearly $20. The same dollar in the S&P 500 is worth $3.
This is not to say that corporate governance is irrelevant. But sometimes other considerations dominate. There is a motto in banks that when customers cannot repay a $100 loan, it is their problem; when they cannot repay a $1 billion loan, it is the problem for banks.
Something like this works for Tesla, because the musk is too big to pop out, and it is too valuable. With Tesla's forecast earnings of $120 million for 2027, the forecast earnings were collected by Visible Alpha. Even with extremely generous multiples of 45, similar to luxury companies such as Ferrari and Hermes, the result is a market capitalization of $50 billion, while Tesla's actual $88.4 billion.
This suggests that an additional $40 billion reflects Musk’s implicit value. It makes sense: Without him, the company might have made cars, but it might not be humanoid biological assistants or connected robots, and everything investors cherish today as if they were real.
Additionally, Tesla's valuation benefits from the support of a horde of thriving retail merchants, thanks to Musk. As Barclays analysts point out, the stock sometimes trades more than Bitcoin than the broader market. The old production rules don’t apply to Tesla; like it or not, neither is the rule of good governance.
