Nostalgia is not a good idea

Prof. Stéphane Girod on Elon Musk’s announcement to take Tesla private

By Professor Stéphane J. G. Girod

Elon Musk took the business community by surprise when he said he had secured financing steps to take Tesla private. This morning, the Financial Times reveals that actually, the board has only begun evaluating this option.

Musk argues that the pressure of short sellers and the volatility of Tesla’s stock is distracting him and his employees way too much: they cannot concentrate on the long term. One can understand Musk’s nostalgia for his start-up days when he was the sole master on board. But, reaching a new stage of growth, Tesla needs the scale, the financing and governance arrangements that can take it further as Chinese competitors such as NIO and BYD might actually leapfrog Tesla very soon.

Nostalgia is the last thing Tesla needs. Here is why:

  • Although constraining, the pressure of financial analysts and markets also makes sure that a company does not procrastinate about delivering on its vision. Tesla has repetitively missed launch and production deadlines, an indication that it needs such discipline;
  • In a well-governed organization, the CEO should delegate operations enough in order to focus on the long-term vision. In companies like Apple and LVMH, two hugely successful public companies, the level of decentralization of management and the clear distribution of roles ensure these companies can focus on the long term and execute well and deliver quarterly results in the short term. They are indications that authority is way too concentrated in Musk’s hands, and this is not healthy. In a complex world where unpredictability is the norm, no CEO can create the necessary level of agility on his/her own;
  • In a private structure, Musk could be even more constrained by his investors than today. In fact, like all technology-listed firms that have enjoyed much more leniency from analysts and markets than traditional industrial ones have enjoyed, Musk could exhaust the patience of his private investors much more quickly. If that happened, he could be sacked by his new owners.
  • Setting up a new ownership structure will be time consuming. For a while, it may distract Musk and Tesla from competing against the new Chinese (and European) kids on the block.

 

Stéphane J. G. Girod is Professor of Strategy and International Business at IMD.

Stéphane J.G. Girod, Professor of Strategy at IMD
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