Is Elon Musk Too Volatile to Run Tesla and SpaceX?

July 23, 2018, 7:56 PM UTC

Elon Musk has had an interesting few months in the public spotlight, from arguing over royalties for a farting unicorn to accusing a national hero of being a pedophile on Twitter. His behavior within the boardroom seems equally unusual. In a slightly bizarre May conference call, he told investors in Tesla that if they “are concerned about volatility, they should definitely not buy our stock.” To no one’s surprise, Tesla’s share price fell sharply.

While investors are justified in worrying about the volatility of the Tesla share price, the more important question may be whether Musk himself is too volatile to run Tesla and SpaceX, the very companies that he founded. Would removing their high-profile CEO be the right move?

To begin answering this question, we need to remember that SpaceX and Tesla owe much of their success to Musk. To build Tesla, Musk convinced the general public that electric cars were trendy. And with SpaceX, Musk arguably helped to reignite the public’s fascination with space. It was his personality, his branding, and the hype he managed to build around these ventures that resulted in them becoming so popular. Many of the people who invested in his companies did so because ultimately they believed in Musk.

In this context, removing Musk could be disastrous for the companies he founded—similar to Apple’s struggles after ousting Steve Jobs. There are now many competitors within both the electric car and space transport sectors, and without Musk, SpaceX and Tesla might simply blend in with the rest.

Yet despite how essential he is to his companies, Musk is increasingly drawing negative attention to himself in the public eye—which is likely to lead to even more gaffes that are damaging to his companies. And while Musk’s volatility seems to be causing Tesla’s share price the most damage, it is potentially much more problematic for SpaceX.

Going to space isn’t cheap. The NASA shuttle program cost about $200 billion, and the International Space Station, including other nations’ contributions, cost about $150 billion (through 2015). NASA’s fiscal year 2017 budget was nearly $20 billion.

Budgets of this size must be approved by Congress. Politicians are very interested in getting reelected, and might not want to risk being associated with someone like Musk. In addition, SpaceX directly deals with NASA, a government agency that is famously risk-averse.

A large amount of SpaceX’s revenue comes from government contracts. Musk could be in trouble if the government follows his advice: If you’re concerned about volatility, then don’t buy.

SpaceX is not the only private company launching rockets. If Musk’s public behavior continues along this negative trend, SpaceX may well be forced to distance itself from its founder in order to save its contracts. Without government support, SpaceX would likely collapse rapidly.

Tesla and SpaceX have found themselves in a difficult predicament. Musk is far too important to his companies to be removed completely. But if he continues to behave inappropriately, the boards of directors should consider publicly censuring him and demanding a change in behavior. If they don’t begin to take serious action now, they might soon come to find that they’ve lost control of their CEO entirely.

Leon Vanstone is a researcher at the University of Texas and science communicator in Austin.

Read More

Great ResignationClimate ChangeLeadershipInflationUkraine Invasion