Elon Musk Faces Major Challenges At Tesla And SpaceX. Now Twitter’s Lawsuit Looms Large

Elon Musk Faces Major Challenges At Tesla And SpaceX. Now Twitter’s Lawsuit Looms Large

It’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.

This week, Tesla reported its first sequential quarterly profit decline in more than a year, thanks to global supply chain issues and an extended shutdown at its Shanghai assembly plant. 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.

Each of these problems on their own would be enough to overwhelm the most skilled Fortune 500 CEO running just one company, but Musk oversees the day-to-day management of at least four organizations. And that was before he proposed to buy Twitter. His demanding summer highlights what happens when leaders add too much to an already onerous schedule, management consultants tell TIME.

“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 Difficult Decisions. “Leadership of any enterprise requires focus. It requires clarity of purpose, and it requires the ability to lead other people. For one person to attempt to spread his attention across so many different enterprises is challenging at best and impossible in some circumstances.”

The Tesla and SpaceX CEO has tried to be an exception. Earlier this year, he offered to buy every Twitter share he doesn’t already own in a deal worth roughly $44 billion. Musk vowed to oversee a number of important technical and operational changes at Twitter once the acquisition was completed, but he recently pulled out of the deal citing the prevalence of spam or fake accounts on the platform.

“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.

Some SpaceX employees feel the same way. Last month, a handful of them circulated an open letter criticizing the behavior of their chief executive, specifically his activity on Twitter. 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.”

Meanwhile, Tesla is confronting its own set of thorny issues, including plant closures, supply shortages and a fresh surge of COVID-19 in China, where many of its cars are manufactured. Despite those challenges, the company managed to post better-than-expected earnings for the April-June quarter, due to strong demand for its cars.

“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 is hoping to boost vehicle deliveries in the coming 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. would exceed that milestone in the next few months.

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Last Update: Thu, 21 Jul 22 12:50:07