Equities

Tesla Needs More of Musk's Focus, Says Ex-Board Member Amid 9% Revenue Drop

Tesla faces 9% revenue drop, 10% staff cuts, and $46 billion compensation vote amid concerns over Musk's focus.

By Barry Stearns

5/23, 09:46 EDT
NVIDIA Corporation
Tesla, Inc.
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Key Takeaway

  • Tesla's former board member Steve Westly urges Elon Musk to focus more on Tesla, citing distractions and lagging performance.
  • Tesla reported a 9% revenue drop to $21.3 billion in Q1 2024, with earnings per share falling 47% to 45 cents.
  • Upcoming shareholder vote on June 13 will decide on Musk's $46 billion compensation package and the proposal to reincorporate in Texas.

CEO Focus Concerns

Tesla's former board member, Steve Westly, expressed concerns about CEO Elon Musk's divided focus at a critical time for the electric vehicle (EV) industry. Speaking at the VivaTech conference in Paris, Westly emphasized the need for Musk to concentrate more on Tesla. "For any CEO of any of the top companies in the world, you need to be laser-focused on what you’re doing. And it appears now that Mr. Musk’s focus is in too many areas," Westly stated. He compared Musk's leadership to that of Nvidia's CEO, Jensen Huang, who he described as "arguably the greatest CEO in the world right now" due to his focused approach.

Westly noted that Musk's distractions, including recent staff layoffs and controversies over his compensation, have contributed to Tesla's lagging performance compared to its peers. Despite these issues, Westly acknowledged Tesla's potential to innovate, highlighting the announcement of a $25,000 low-cost Tesla model expected by early 2025. "Don’t bet against the guy [Musk], he’s got a pretty good track record," Westly added.

Financial Performance and Layoffs

Tesla's financial performance has been under scrutiny following its largest quarterly revenue decline since 2012. The company reported a 9% drop in revenue to $21.3 billion for Q1 2024, with earnings per share falling 47% to 45 cents. Analysts had projected earnings of 49 cents per share on revenue of $22.22 billion. The revenue decline was attributed to reduced average vehicle selling prices and a drop in vehicle deliveries. Total gross margins fell to 17.4%, down 199 basis points from Q1 2023.

In response to these financial challenges, Tesla announced a more than 10% reduction in staff headcount. The layoffs included senior executives and the entire supercharger team, although Musk later indicated plans to rehire some supercharger employees and expand the network. "Tesla will spend more than $500 million to expand its supercharger network and create thousands of new chargers in 2024," Musk stated on X, formerly known as Twitter.

Shareholder Vote and Compensation

Tesla's upcoming annual shareholder meeting on June 13 will be pivotal, with investors voting on Musk's $46 billion compensation package and the proposal to reincorporate Tesla in Texas. The compensation package, initially valued at $56 billion, was voided by a Delaware court earlier this year but has been reintroduced by Tesla. The vote on Musk's pay requires a simple majority, excluding shares owned by Musk and his brother, Kimbal Musk.

The proposal has sparked a debate among investors. New York City Comptroller Brad Lander, representing the city's pension funds, criticized the Tesla board for being "overly beholden" to Musk and not ensuring that Tesla has a full-time CEO. "The board has yet to ensure that Tesla has a full-time CEO," the investors stated. They also raised concerns about Musk using Tesla resources for his other ventures and the potential risk to stock values if Musk were forced to sell his pledged shares.

Tesla's board, however, supports the compensation plan, arguing that it has driven significant growth. Independent board chair Robyn Denholm highlighted that Musk's targets were "extraordinarily ambitious" and that the plan has benefited shareholders. "If he failed, Elon was entitled to receive no salary, no cash bonuses, and no equity," Denholm said. "But if Elon was able to make it happen, you and all other stockholders would reap the benefits."

Street Views

  • Steve Westly, The Westly Group (Bearish on Tesla's current focus):

    "For any CEO of any of the top companies in the world, you need to be laser-focused on what you’re doing. And it appears now that Mr. Musk’s focus is in too many areas."

  • Steve Westly, The Westly Group (Neutral on Tesla's leadership compared to Nvidia):

    "If you look at people like Jensen Huang — who is arguably the greatest CEO in the world right now, continuing to bang out superior results — focus is the key. Tesla could use more of it."

  • Steve Westly, The Westly Group (Cautiously Optimistic on Tesla's new product development):

    "Don’t bet against the guy [Musk], he’s got a pretty good track record... A newly announced $25,000 low-cost Tesla model could arrive by early 2025."