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Reuters/Brian Snyder
IT'S LONELY AT THE TOP

Tesla was always a bet on Elon Musk—and now it’s even more of one

By Michael J. Coren

Two narratives about Tesla’s fate have been dueling it out for awhile. One says the electric-car manufacturer is a few short years away from profitability and global adoption of alternative energy. The other says the company is driving headlong into “a brick wall.”

The latter is the assessment from investor Jim Chanos, who shorted Enron stock before its collapse, and has been wagering the same bet against Tesla since 2016. He cited a litany of executive departures and a business model he characterized as “walking insolvency.”

Those fears were underlined this week by the news that two more top executives are taking leave of the company. Engineer Matthew Schwall, who was the company’s main point of contact for federal officials at the National Transportation Safety Board, left to join Alphabet’s Waymo, perhaps the most formidable competitor in the race to build self-driving cars. Tesla, meanwhile, is in the midst of its fourth federal investigation into crashes involving Tesla vehicles.

Tesla also recently announced that its engineering chief, Doug Field, would go on a leave of absence to spend time with family. The Wall Street Journal cited sources (paywall) saying Field will be away for a six-week sabbatical; a Tesla spokesman said Field will remain at the company.

Field was in charge of Model 3 production before Tesla CEO Elon Musk took back control of production. At the time, Musk praised Field in a tweet but wrote, “My job as CEO is to focus on what’s most critical, which is currently Model 3 production.”

In many ways, Tesla has always survived on the strength of Musk’s reputation to accomplish seemingly impossible things. Bad news could be weighed against a track record that included improbable feats such as launching a Tesla roadster into space. But those achievements, however grand, rested on the ability of talented teams below Musk who were motivated to push beyond existing engineering.

Meanwhile, an abbreviated list of departures since 2016 include more than a dozen top executives who have left for competitors or greener pastures:

  • March 2017: Tesla’s director of hardware engineering, Satish Jeyachandran, left for Alphabet’s self-driving car unit, Waymo.
  • March 2017: Vice president of human resources Mark Lipscomb leaves for Netflix
  • April 2017: CFO Jason Wheeler departs after 18 months and is replaced by Previous  CFO Deepak Ahuja.
  • May 2017: Vice president of human resources Arnnon Geshuri, leaves after nearly eight years at the company (paywall)
  • June 2017: Former Apple engineers Chris Lattner, leaves after serving as top of Tesla’s Autopilot engineering team for less than six months
  • Sept 2017: Vice president of business development Diarmuid O’Connell departs (paywall)
  • Aug 2017: Tesla loses its senior director of battery technology, Kurt Kelty for startup Plenty
  • Feb 2018: Jon McNeill, the former global president of sales and service who left for Lyft Inc
  • March 2018 : Top financial executives Eric Branderiz (chief accounting officer) and Susan Repo (vice president of finance depart
  • April 2018: Autopilot chief Jim Keller leaves to return to semiconductor engineering

Working for Musk may be a big reason for the turnover. Tesla’s experience with the Model X—an electric SUV beleaguered by problems and last-minute design requirements from Musk—was a brutal time for Tesla employees. The “over-engineered” vehicle blew through budgets. Musk admitted in a 2016 earnings statement that “hubris” lead to him demanding too much technology in the first version of the vehicle.

The vice presidents of production (Greg Reichow) and manufacturing (Josh Ensign,) left Tesla after the ordeal. The company downplayed connections to the manufacturing turmoil at the time, saying Reichow had opted for  a “well-earned break.”

But history has a way of repeating itself. In 2016, Musk described  Model X’s troubles as “production hell;” he used the precise same words to describe Model 3 production last year. The problem this time? The assembly line. Despite a simplified production schedule for the Model 3—with more complex configurations of the car slated for later in the production cycle—that was’t true for the assembly line itself. Instead, Musk’s quest for a fully automated factory lead to a mess.

“We had this crazy, complex network of conveyor belts,” Musk told CBS News in a segment that aired last month. “And it was not working, so we got rid of that whole thing.” Musk later tweeted that “excessive automation” was a mistake. Tesla is now rebuilding the assembly line.

As the exodus of executives has mounted, Musk has been steadily consolidating control at the top of the company. This February, when Musk announced in an earnings call that John McNeill, the head of Tesla’s sales and service group, would leave the company, he also assumed those responsibilities. “Going forward, I will be having the sales and service report directly to me,” said Musk. “There are no plans to search for a replacement.”

And on May 14, Musk sent a letter to employees (paywall) saying he was “flattening the management structure to improve communication, combining functions where sensible and trimming activities that are not vital to the success of our mission.” This came just a few weeks after Musk promised to slash the number of contractors at Tesla, comparing some to “barnacles” and a “drunken sloth.”

Not everyone sees the management moves as an indication that the wheels are coming off. Tesla analyst Romit Shah of Instinet says even this degree of churn is normal as Tesla’s climbs toward profitability. “We disagree that the turnover reflects deeper problems,” he wrote by email. “Burn out tends to happen,” at companies like Tesla with roughly 50% annual growth (Tesla’s revenue rose to almost $12 billion last year). Shah estimates that Tesla is on track to reach production of 5,000 cars per week within the next few months, a position that should enable it to turn a profit after more than a decade of losses.

So far, Shah’s version is winning on Wall Street. Despite its status as one of the most-shorted stocks in the market, and a string of negative news (blown production deadlines, multibillion-dollar losses, a tone-deaf Twitter joke by the CEO about bankruptcy), Tesla’s share price has held relatively steady this year. It’s down just 2% since the beginning of 2018. While off 25% from its peak last September, the stock price has quadrupled over the last five years.

Musk may be betting that he can pull off the same improbable feats he managed when Tesla was a much smaller and younger company, not the $51 billion cars-and-solar-energy energy behemoth it is today.

But if Tesla does succeed, it’s not clear who at the company besides Musk will be left to see it.