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Trading  | September 11, 2018

Long time Tesla bull Gene Munster of Loup Ventures has written an op-ed stating what every Tesla short seller in the world has been saying for the last few years: Tesla needs to completely overhaul its board, Elon Musk is hurting the company, and if the problems aren’t addressed, “it could spell the end for the company”.

Separately, Nomura’s Romit Shah became the latest analyst to downgrade Tesla to neutral from buy. In a note titled “No Longer Investable” Shah writes that previously he’s been one of the biggest bulls on the Street since initiating coverage last October; that is no longer the case and Shah slashed his Tesla price target from $400 to $300 due to the “erratic behavior of CEO Elon Musk” citing such other concerns which we and others have highlighted before as: the increasing number of Musk tweets per day, the cave diver accusation, Musk’s outburst on an earnings call, his taunts of short sellers and his appearance on Joe Rogan’s podcast. As a result Shah said it’s better to remain on the sidelines until the company has better leadership, while still conceding that Tesla can out-innovate the competition and that the company may eventually be much bigger than it is today.

As Bloomberg notes, after Shah’s downgrade, bulls on the stock are now a minority with 9 analysts recommending buy, 11 recommending a hold, and 12 recommending a sell.

But when it comes to Tesla bulls, nobody compares to Gene Munster, which is why his CNBC op-ed last night was so striking. While most Tesla skeptics have been forced to take their opinions to social media, Munster had the red carpet rolled out for him at CNBC, who not only published his op-ed but also gave him eight minutes to explain himself during Fast Money on Monday.

To start, Munster’s op-ed notes that Elon Musk’s behavior could wind up “costing the company”. But amazingly, he states that he believes Musk’s behavior hasn’t cost the company yet, but only may “if the board and others in his circle can’t rein him”. With all due respect, Gene, that ship has sailed.

He then goes on to describe the three specific ways he believes that Elon Musk is hurting Tesla today.

The first is that he believes Musk is difficult to work with because of his personality. He also (only now) believes that executive turnover is becoming a problem and is “eroding Tesla’s competitive advantage”. This is, of course, an issue that skeptics of the company and short-sellers have been pointing out for years.

Munster also believes that Musk is negatively affecting the company’s ability to recruit talent. He states that prospective employees are likely exposed to Elon Musk’s personality during the interview process and that the publicity around Musk’s actions are “likely shrinking the funnel of high-level employees even willing to explore a job at Tesla in the first place”.

Munster draws this deep conclusion just hours after the company filed an 8-K noting that its Chief Accounting Officer resigned after less than a month at the company and stated: “Since I joined Tesla on August 6th, the level of public attention placed on the company, as well as the pace within the company, have exceeded my expectations. As a result, this caused me to reconsider my future.”

Third, Munster just thinks Elon Musk is a jerk. He says that Musk’s “aura” recently has seemed “part jerk, part bully and part liar”. Again, all three of these have played out in the public eye over the last couple of months and Munster again arrives (late) at an obvious conclusion: Musk is losing supporters and, as a result, so is Tesla.

The op-ed then goes on a rant about how Musk is still the face of Tesla. He notes that Tesla needs Elon Musk because he is “the spirit of innovation” at the company and that at a time of increased competition, Tesla can’t afford to lose its spirit. Gene then – again – arrives at a conclusion that short sellers have arrived at already: Musk needs to stay at the company but needs to step out of his current roles.

The problem at the company, he states, is that Musk is surrounded by people that are unwilling or unable to stand up to him. We wonder what could give Munster that impression: the fact that Elon Musk’s brother is on the board or that Elon is frequently seen gallivanting with “independent” members of his board. Again, this point has also long been argued by skeptics of the company. 

Then, Gene finally gets to it: he says the board needs “an overhaul”. He states:

We think Tesla’s board needs an overhaul. There are too few independent directors and too many directors with long-term relationships to Musk as investors, overlap with other companies like SpaceX, family or otherwise. There’s no one on the board that has Musk’s ear to truly influence him to fix these self-inflicted wounds.

The easiest, most immediate action would be for Musk to resign as chairman of the board and have one of the non-independent directors resign from the board to bring on a new board member as chairperson. There was a vote earlier in the year to remove Musk as chairman, but the voting structure of Tesla’s stock requires a super majority to pass changes. The motion failed.

He even makes some recommendations as to who he would like to see on the Board of Directors: the obligatory Al Gore reference comes up alongside of former Boeing CEO Jim McNerney.

Other board members with close ties to Elon Musk should step down voluntarily in the best interest of the company, according to Munster. He states that the company’s chances of success are better with a board that can viably influence the CEO.

This op-ed follows Loup Ventures’ last open letter to Elon Musk. That open letter made such an impact that it was only about 6 weeks later that Musk publicly tripled down on calling Thai cave rescuer Vern Unsworth a “pedo”, and throwing the term “child rapist” into the mix, too, for kicks.

Without voluntary resignations from the board, Munster argues, an indefinite stalemate that doesn’t benefit anybody – the company’s employees, shareholders, the board or Elon Musk himself – is likely. 

Munster’s full op-ed can be read here

Astonishingly, Munster does not seem to directly suggest that Musk should step out of the CEO role.

Perhaps he believes that once a new board steps in, they will wind up doing this dirty work themselves. It bears repeating that skeptics and short sellers have been suggesting that the board hasn’t been doing its job for years. The fact that it took Gene Munster this long to recognize this – or at least this long to say something about it – goes to show exactly how loyal to Musk many of the company’s supporters are. But, just as Munster is starting to turn, others could follow. 

Better late than never, though. We believe it is a nice effort from Gene and that (obviously) his criticisms are warranted. We’re not sure that Elon Musk will feel the same.

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