There have been a lot of signs recently that Elon Musk’s tenure as CEO of Tesla is not going well.
Musk’s lawyers are scheduled to appear in a New York courtroom today to convince a judge not to hold Musk in contempt for tweeting out a production forecast without first clearing the tweet with Tesla’s lawyers—something the Securities and Exchange Commission says Musk committed to do in a September settlement.
Yesterday, Tesla announced a 31 percent quarter-over-quarter drop in vehicle shipments. The decline was partly driven by difficulties shipping the Model 3 to Europe and China and partly by a dramatic 44 percent fall in shipments of the more expensive Model S and Model X. Tesla’s stock dropped about 9 percent when trading opened this morning.
In March, dashcam video showed Tesla’s Autopilot steering toward a concrete lane divider. That’s particularly alarming because a Tesla customer lost his life a year ago when Autopilot steered his car into a lane divider in a similar situation.
Also in March, Tesla announced price cuts for over-the-air Autopilot upgrades for people who had purchased a Tesla car without choosing the Autopilot upgrade. That angered customers who had paid more for Tesla’s full self-driving package, hadn’t gotten the technology yet, and weren’t being offered refunds. Days later, Musk admitted this was a mistake and reinstated the previous prices.
In February, Musk announced that Tesla would close most of its US stores as a cost-cutting move. A couple of weeks later, the company reversed course and announced that many of its stores would stay open after all.
And all of this happened in just the last two months. Musk made many more boneheaded decisions in 2018.
Why has Musk made so many mistakes? Partly this seems to reflect Musk’s impulsive personality. But it also reflects Musk’s management philosophy.
Musk’s management style is a bad fit for a big car company
“It is better to make many decisions per unit time with a slightly higher error rate than few with a slightly lower error rate,” Musk wrote in an August email to . “Because obviously one of your future right decisions can be to reverse an earlier wrong one, provided the earlier one was not catastrophic, which they rarely are.”
That might be a good management philosophy for the CEO of a scrappy startup where speed and flexibility are at a premium. This arguably described Tesla for its first 10 to 12 years. Back then, survival required Tesla to move quickly and make bold, risky bets.
But it’s a bad philosophy for the CEO of a big, mature company like Tesla circa 2019. Tesla’s survival no longer depends on the success of any single product. Instead, Tesla’s success depends on competently executing a bunch of different tasks in parallel: developing and launching the Tesla Semi, Model Y, and new Roadster, replacing the Model S, refreshing the Model X, building a new factory in China, improving Tesla’s Autopilot technology, continuing to drive down battery costs, scaling up its sales and service infrastructure, continuing to expand its supercharger network, revamping its retail stores and overhauling its system for customer referrals, streamlining Model 3 production to improve profit margins, and so forth.
The way a car company—or really any large company—deals with this kind of situation is by hiring an army of competent mid-level managers and then delegating different tasks to different people. And once a CEO has delegated a task to a subordinate, he needs to give the subordinate enough autonomy to actually do the job.
That’s not Musk’s approach. Musk is famous for making spur-of-the-moment decisions that throw Tesla into chaos. The decision to close Tesla’s retail stores is a great example of this. Reporting after the announcement suggests that many of the people affected didn’t even find out about the plan until Musk announced it publicly. Musk’s announcement sent the people who run Tesla’s retail stores scrambling to execute the new plan. Then when Musk changed his mind days later, they had to scramble to reverse those actions.
Not how Elon rolls
Obviously, a CEO has every right to decide to close a company’s stores if he wants to. But a competent CEO will consult widely with affected employees first. He will listen to objections, build consensus, and give people time to plan a smooth rollout of the new strategy.
Instead, Musk has stuck to his strategy of making “many decisions per unit time with a slightly higher error rate.” The problem is that the cost of a CEO’s bad decisions gets bigger as the company grows. A single tweet or email from Musk can create chaos for hundreds or even thousands of rank-and-file Tesla workers. And as Tesla gets bigger, it becomes less and less likely that Musk has all the relevant information, pushing up his error rate.
Not only does this philosophy lower Tesla’s productivity in the short run, it also makes it harder for Tesla to recruit and retain talented people for key executive roles. Tesla has become notorious for its high executive turnover, and a major reason seems to be that it’s no fun being an executive at a company with a CEO like Elon Musk.
The result is a corporate culture that makes it difficult for anyone to do long-range planning. And that might be why unexpected obstacles seem to keep preventing Tesla from reaching its goals. For example, a big reason that deliveries fell last quarter is that Tesla didn’t have enough capacity for shipping its cars overseas. Shipping cars across the ocean requires a lot of carefully planning, but it’s not difficult. A well-run company ought to have been able to line up the necessary shipping capacity months in advance.
But focusing on those kinds of mundane details is hard in a company where the CEO is constantly demanding that subordinates drop everything to work on new ideas—or when high turnover means that key posts are vacant much of the time.