Leadership Failures: Elon Musk's Poor Decisions and Tesla's Decline

This report examines the detrimental impact of Elon Musk's decisions on Tesla's reputation and financial performance. The analysis focuses on Musk's tweet about taking Tesla private at $420 per share, which led to a sharp decline in share value and triggered an SEC investigation. The report highlights how this single decision, along with subsequent controversial actions like smoking cannabis on a live podcast, damaged investor confidence and resulted in significant financial losses. It emphasizes the importance of reputation as a valuable intangible asset and demonstrates how poor leadership can undermine trust, erode shareholder value, and negatively affect a company's workforce. The report references relevant literature to support its claims and provides a comprehensive overview of the consequences of Musk's actions on Tesla's stakeholders.

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ELON MUSK’S POOR DECISIONS THAT
PLUNGED TESLA SHAREHOLDERS INTO
DESPAIR
Reputation is a socially shared impression; in any given situation there is consensus
about how a firm should behave (Bromley, 2002; Sandberg, 2002). It is based on a
collection of commonly held beliefs about the capacity and commitment of a
corporation to satisfy the interests of various stakeholders (Fombrun, 1996).
Holding this in the highest regard, investors believe reputation conveys important
information about the profit and long-term potential of a company (Fombrun and
Shanley, 1990), with this increasingly influencing its appeal as an investment choice
(Clive, 1997). On the 7th of August, Elon Musk, the CEO of Tesla tweeted that he
wanted to take Tesla Private at $420 a share, a manipulated figure that he claimed
he decided to “round up from $419” (Lyons, 2018), that instantaneously destroyed
his reputation among his investors, and the wider market, as shares plummeted by
9% that week, wiping over $5bn off the company’s value (ibid., 2018).
Chart 1.
1
(Source: Yahoo Finance,
2018)

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Chart 1. demonstrates the devasting impact Elon Musk’s tweet had on Tesla, as
shares continued to fall by 16% in the following three weeks (Choudhury, 2018).
This poor decision not only raised concerns about Musk’s leadership, however, it
triggered an investigation by U.S. Securities and Exchange Commission (SEC). The
official documents published by the SEC state,
“This case involves a series of false and misleading statements made by Elon Musk,
the Chief Executive Officer of Tesla, Inc. on August 7, 2018, regarding taking Tesla,
a publicly traded company, private. Musk’s statements, disseminated via Twitter,
falsely indicated that, should he so choose, it was virtually certain that he could take
Tesla private at a purchase price that reflected a substantial premium over Tesla
stock’s then-current share price.” (SEC.gov, 2018).
This tweet caused significant confusion and disruption in the market for Tesla’s
stock, resulting in major harm to investors, Tesla’s reputation and violated the
Securities Exchange Act of 1934 (ibid., 2018).
Furthermore, many have speculated that the manipulated figure of ‘$420’ in his tweet
was in reference to an infamous term in the US that refers to the consumption of
cannabis (Neate and Wong, 2018), which only caused more controversy exactly a
month later when Elon Musk was seen to smoke cannabis live on a podcast (ibid.,
2018). Chart 1. Indicates the impact of this poor decision had on Tesla shares in
September 2018, plunging more than 30 percent off its all-time high at the time of
$389.61 (CNBC, 2018) and caused two senior executives to quit. This demonstrates
the value of reputation in retaining and recruiting a talented workforce while
sustaining a strong share price, rendering it one of the most valuable intangible
assets of the business (Little and Little, 2000).
Elon Musk demonstrates just how damaging publicly poor decisions can be to a firm,
singlehandedly wiping billions from the company’s valuation as well as dramatically
harming Tesla’s reputation and credibility among shareholders by undermining the
basic foundations of confidence and trust in their corporate relationship.
Word Count: 493
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R E F E R E N C E S
Bromley, D., (2002) Comparing corporate reputations: League tables, quotients,
benchmarks, or case studies? Corporate reputation review, Vol 5(1), pp.35-50.
Choudhury, S., (2018) ‘SEC Says Musk Chose $420 Price For Tesla Shares
Because It’s A Pot Reference’, CNBC, New Jersey. Available at:
https://www.cnbc.com/2018/09/28/sec-says-elon-musk-at-tesla-chose-420-price-as-
pot-reference.html [Accessed 21 March 2020].
Clive, C., (1997) Part I: Corporate Reputation as a Strategic Asset: Corporate Reputation and
the Bottom Line. Corporate Reputation Review, Vol 1(1), pp.19-23.
Finance.yahoo.com. (2018) Yahoo Finance. [online] Available at:
https://yhoo.it/3aghTDQ [Accessed 21 March 2020].
Fombrun, C., (2015) Reputation. Wiley encyclopedia of management, pp.1-3.
Fombrun, C. and Shanley, M., (1990) What's in a name? Reputation building and corporate
strategy. Academy of management Journal, 33(2), pp.233-258.
Little, P.L. and Little, B.L., (2000) Do perceptions of corporate social responsibility
contribute to explaining differences in corporate price-earnings ratios? A research
note. Corporate Reputation Review, Vol 3(2), pp.137-142.
Lyons, K., (2018) Tesla's Stock Falls Sharply After Elon Musk Reveals 'Excruciating'
Year. [online] The Guardian. Available at:
https://www.theguardian.com/technology/2018/aug/17/elon-musk-says-past-year-
has-been [Accessed 22 March 2020].
Neate, R. and Wong, J., (2018) Tesla Shares Crash After Elon Musk Smokes Joint
On Live Web Show. [online] The Guardian. Available at:
https://www.theguardian.com/technology/2018/sep/07/tesla-chief-elon-musk-smokes-
marijuana-on-live-web-show [Accessed 19 March 2020].
Sandberg, K., (2002) Kicking the tires of corporate reputation. Harvard Management
Communication Letter, Vol 5(1), pp.3-4.
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SEC.gov. (2018). [online] Available at:
https://www.sec.gov/litigation/complaints/2018/comp-pr2018-219.pdf [Accessed 21
March 2020].
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