Technically, Elon Musk didn’t start Tesla back in 2003. That was Martin Eberhard and Marc Tarpenning. Musk joined the company a year later as the chairman of Tesla’s board of directors, and in 2008, he replaced Eberhard as CEO. In the years that followed, Musk and Tesla have almost become synonymous. To some, Musk may as well be Tesla. But according to one Tesla shareholder, that’s not a good thing.
Bloomberg reports that California shareholder Jing Zhao has introduced a proposal that would require Tesla’s chairman to be an independent director. If it’s approved by shareholders this June, the new policy would remove Musk from the role he’s held for nearly 15 years. According to Zhao, doing so would bring Tesla in line with the “prevailing practice” in markets around the world. He also believes it would minimize conflicts of interest like Tesla’s 2016 merger with SolarCity, a company Musk co-founded.
Tesla’s board, however, reportedly believes there’s no need to adopt Zhao’s proposed policy change. Citing lead independent director Antonio Gracias’ role in protecting the company from issues related to Musk’s role as a non-independent chairman, it recommended shareholders vote against the proposal. “The company’s success to date would not have been possible if the board was led by another director lacking Elon Musk’s day-to-day exposure,” claimed the board in a statement.
With the board’s support, Musk likely has bigger issues to focus on than retaining his position as chairman. Reuters reports that continued Model 3 production delays have left Tesla short on cash. So in addition to solving production problems, Musk will reportedly have to keep a close eye on spending. According to Morgan Stanley analyst Adam Jonas, “Tesla may not ‘need’ to raise funds, but many investors expect that the company will very much ‘want’ to.”
Further complicating the issue is Musk’s recent claim that Tesla won’t need additional cash this year. If he can’t get Model 3 production back on track, Musk’s statement could put Tesla in a difficult situation. A company can’t run without cash, but a capital raise would likely erode investors’ trust. And as Cowen & Co analyst Jeffrey Osborne wrote last month, “The company’s financial predictions may be losing credibility within the financial community.”
On the other hand, if Tesla fixes its production problems and meets its goal of building 5,000 Model 3s a week by the end of the second quarter, cash flow may no longer be an issue. But as Jonas points out, that’s a big “if,” saying, “no investor that we have spoken to expects Model 3 production of 5K/week by the end of [the second quarter of 2018].”