Twitter’s Lawsuit Adds To Elon Musk’s Tesla and SpaceX Woes
Itt’s been a difficult summer for Elon Musk. Facing a lawsuit filed by Twitter, factory shutdowns for Tesla, and backlash from SpaceX employees, the world’s richest person has his hands full—and more setbacks could be coming.
Tesla’s first quarter-to-quarter profit decrease in over a decade was reported this week by global supply chain issues, as well as a long shutdown at its Shanghai assembly facility. The electric vehicle maker posted better-than-expected earnings, but looming challenges remain at the company as Musk prepares for an October trial against Twitter—the company suing him for backing out of a $44 billion acquisition agreement. And at SpaceX, Musk’s private rocket company, some employees are unhappy with Musk’s leadership..
Musk is responsible for the management of four of the five problems. That was even before Musk proposed buying Twitter. According to management consultants, TIME, his demanding summer is a reminder of what happens when leaders pile on more than they can handle.
“There’s a reason that in a universe of incredibly talented, highly ambitious individuals who are CEOs of companies, hardly any of them try to lead more than one at a time,” says Eric Pliner, CEO of management consulting firm YSC Consulting and author of Making difficult decisions. “Leadership of any enterprise requires focus. This requires clarity and the ability to guide others. For one person to attempt to spread his attention across so many different enterprises is challenging at best and impossible in some circumstances.”
He has attempted to make an exception for SpaceX and Tesla CEOs. Earlier this year, he offered to buy every Twitter share he doesn’t already own in a deal worth roughly $44 billion. Musk promised to supervise a series of significant technical and operational changes in Twitter after the acquisition, but he pulled out recently due to spamming or false accounts.
“All of these factors are side shows that add to what’s been really an ugly year for Tesla investors so far,” Wedbush Securities analyst Dan Ives told TIME after Tesla’s earnings report came out Wednesday evening. “I think Twitter clearly has the upper hand going into Delaware court and ultimately we’re looking at probably a $5 to $10 billion settlement that Musk is going to have to pay Twitter at a minimum, but he could also potentially have to pay the company the $54.20 billion he [originally] offered.”
Wall Street analysts like Ives fear that if Musk loses the legal battle, he might have to sell Tesla stock in order to pay Twitter, which would likely pull the company’s stock price down. That carries risk for Tesla investors, and would be a significant blow for the world’s most valuable carmaker.
Musk’s very public criticism of Twitter and its leaders, combined with his backing out of the deal, has created a significant erosion of trust, says Robert McCann, an adjunct professor at UCLA’s Anderson School of Management. “At Twitter, it’s hit employee morale significantly, spooked advertisers and I think the deeper issue is that it has created a sense of confusion,” he says.
SpaceX employees are not alone in feeling the same. Last month, some SpaceX employees wrote an open letter in which they criticised the chief executive of the company, and specifically, his Twitter activities. The letter called Musk’s behavior and constant tweeting “a frequent source of distraction and embarrassment.” The company fired some of the letter’s organizers the next day.
The self-described “free-speech absolutist” has also been the subject of sexual misconduct allegations, involving a SpaceX flight attendant. Musk called the accusations “utterly untrue.”
“No company is led by only one individual but if the other people around that individual aren’t clear on where that person’s focus is,” says Pliner, “it can be really hard for them to not be distracted by other activities of that individual in the press or out in the business world more generally.”
Tesla faces its own problems, such as plant closures and supply shortages. There is also a new surge in COVID-19, which Tesla uses to manufacture many of its cars. The strong demand for Tesla’s cars helped the company post higher-than-expected earnings in the April-June quarter.
“I call their earnings report slightly better than feared,” Ives says. “Margins held up a little better than worst-case fears. But they’re still juggling a lot of balls.”
Musk’s summertime juggling act has only just begun. Tesla plans to improve vehicle deliveries over the next year. On the earnings call Wednesday, Musk said Tesla’s new factory outside of Berlin, Germany produced over 1,000 cars per week in June. He promised investors that the company’s new factory in Austin, Tex. He promised that the milestone would be exceeded in the coming months.
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