Last week, Tesla CEO Elon Musk was bombarded with hundreds of questions from fans via Twitter — along with declarations of adoration and the occasional aspersions — ahead of the company’s annual shareholder meeting on June 5th.
The questions ran the gamut: Will Tesla create an electric microbus? Will it participate in the Formula E all-electric race? Will there be a Tesla motorcycle? How about an electric barbecue that plugs into your Tesla vehicle?
Whether these quixotic questions are answered doesn’t really matter, although it’s likely that some will be. Musk has shown an affinity for questions that focus on Tesla’s future rather than its present. Tesla’s annual shareholder meetings have historically delivered informational nuggets on existing products and plans for new ones — much to the delight of its base of true believers. The meeting is scheduled for 2:30PM PT on Tuesday at the Computer History Museum in Mountain View, California.
Amid the swirl of idealism and support for Musk and his vision, it’s easy to forget the present-day problems the company is facing. Tesla must resolve manufacturing problems and ramp up production of its Model 3 electric vehicle without compromising on quality or worker safety if it hopes to deliver on its many other plans, which include a Class 8 heavy truck, next-generation Roadster, solar roofs, and self-driving cars.
Tweet us your questions today for Elon to answer at the Tesla Shareholders Meeting next Tuesday (there will also be a live Q&A)— Tesla (@Tesla) June 1, 2018
While the believers focus on the future, here are some of the more near-term questions we’d like to see answered at the meeting.
What is the status of Model 3 production problems?
Tesla has struggled to produce the Model 3 since the first deliveries were made in July 2017 during a splashy handover event for employees. Problems first became public in early October 2017 when Tesla reported it had produced just 260 of the electric vehicles, which was far below its goal, and it delivered only 220 of those.
Since then, production has improved, but it’s still falling short of Tesla’s own targets. The company reported at the end of the first quarter in April that it had reached a production level of 2,020 Model 3s per week, short of its 2,500-per-week goal. It's aiming for 5,000-per-week by the end of the next quarter.
The failure to meet its production goals has increased pressure on the company and has prompted prospective Model 3 owners to request that the company return their $1,000 refundable deposit for the vehicle. Nearly a quarter of all Model 3 deposits in the US were refunded as of the end of April, according to data released on Monday from Second Measure, a company that analyzes billions of anonymized purchases to answer real-time questions about consumer behavior. Tesla has said its internal numbers are different from what Second Measure’s data shows, but the automaker didn’t provide specific numbers.
To be clear, Tesla is still sitting on thousands of reservations, and in turn, tens of millions of dollars in cash holdings as a result of those deposits. Tesla’s Model 3 net reservations, including configured orders that have not been delivered, exceeded 450,000 at the end of the first quarter, according to Tesla. The company has acknowledged that the cancellations are “almost entirely due to delays in production in general and delays in availability of certain planned options, particularly dual motor AWD and the smaller battery pack.” Tesla contends that “owner happiness with the product is extremely high.”
Still, Tesla’s financial future is directly tied to the Model 3 and the company’s ability to produce and deliver vehicles that meet the expectations of its buyers.
Will activist shareholders chip away at Musk’s power?
Shareholders will vote whether to approve three of Tesla’s board of directors: Antonio Gracias, 21st Century Fox CEO James Murdoch, and Musk’s brother Kimbal Musk. Tesla supports the re-election of all three directors. Activists are advising shareholders to vote against their re-election over concerns that the board lacks independence. Tesla argues that, with the exception of Elon Musk and Kimbal Musk, all of its current members are “independent directors.”
A separate non-binding resolution calls for Tesla to remove Musk as board chairman; the proposal would keep Musk as CEO. Unsurprisingly, Tesla opposes the resolution. The board believes the company is still best served by Musk continuing as chairman and argues that board leadership needs to be in “lockstep” with operations during times when a company must quickly adapt to constant change and outside pressures.
Criticism of Tesla’s board isn’t new. There have been efforts launched by activist investors to force a more independent board in previous years as well. Last year, shareholders voted against a proposal to declassify Tesla’s board, a move that would have forced all directors to face an annual re-election, as opposed to staggered three-year terms.
And the same players — proxy advisory firms Institutional Shareholder Services and Glass Lewis as well as union-affiliated investment adviser CtW Investment Group — are back again this year. ISS has recommended investors vote against Gracias and Murdoch and support Kimbal Musk. ISS also supports the proposal to split the chairman and CEO roles.
$TSLA's rise and its potential fall shows the power of narrative to affect the allocation of billions of dollars and its time for the board to step up. Vote AGAINST Gracias, K. Musk, and Murdoch on June 5. #corpgov https://t.co/rIUucS35uv— CtW Investment Group (@CtWInvGrp) May 30, 2018
It’s unlikely that shareholders will approve the proposal to dump the three board members or force Musk from the chairman position. Musk is Tesla’s largest shareholder with 21.9 percent of company shares, and he enjoys support from other big fund managers, making it difficult to pass any proposal he’s opposed to.
However, lingering problems with Model 3 production as well as more recent volatile behavior from Musk, particularly during the company’s first-quarter earnings call, could prompt more shareholders to vote for the measure. If that happens, Musk and the board might be forced to make some changes.
What will a reorganized Tesla look like?
Musk is aware that some changes at the company, which is burning through cash at an incredible rate as it tries to ramp up production of the Model 3, are warranted. But he has his sights set on third-party contractors and management, not the board.
In May, Musk sent a memo describing plans to flatten the management structure at Tesla as part of a reorganization aimed at streamlining operations. The memo followed the departure of Tesla executives such as Matthew Schwall, who left to join Waymo, and senior vice president of engineering Doug Field, who is on temporary leave. Musk also talked about a reorganization during Tesla’s first-quarter earnings call, where he described third-party contractors as “barnacles.”
It’s unclear how the barnacle-removal process has progressed or what a flattened management structure might look like. Meanwhile, one of its directors, famed venture capitalist Steve Jurvetson, is still in purgatory. Jurvetson, a friend and adviser of Musk’s, was one of Tesla’s earliest investors. He joined Tesla’s board in 2009 and is also a director of Musk’s private rocket company SpaceX.
In November, Jurvetson took a leave of absence from both boards following his exit from the venture firm he co-founded, Draper Fisher Jurvetson, amid an investigation into sexual misconduct. Jurvetson has moved on professionally; he started his new venture firm Future Ventures this spring. But Musk has yet to weigh in on Jurvetson’s future on the Tesla or SpaceX boards. It’s unusual for a board member to take such a long leave of absence.
Tesla hints at a future that includes Jurvetson. In its proxy statement, the board writes, “We believe that Mr. Jurvetson possesses specific attributes that qualify him to serve as a member of our Board, including his experience in the venture capital industry and his years of business and leadership experience.”
What is the plan for its future products?
Tesla does have other products in its pipeline, including future vehicles such as the recently revealed Roadster prototype, the Tesla Semi, and the mysterious Model Y, as well as its solar roof product and longer-term goals to give its vehicles fully autonomous capabilities.
This cascade of plans — many of which are outlined in Musk’s “Master Plan, Part Deux” — are bewitching in part because they offer a glimpse of what Tesla could become if executed smartly: a profitable ecosystem of sustainable energy products that touch every point of a person’s daily life.
Present-day challenges with the Model 3 are the smelling salts to such aims. Without the Model 3, the company will be hard-pressed to execute any of these other ideas, no matter their merit or demand. If Model 3 production continues to jam up the company, these may be delayed or scrapped altogether.
However, while the Model 3 is the most pressing problem — and the one that deserves the most attention — there is certain pragmatic information that could prove valuable to shareholders who want to gauge whether Tesla has the fortitude and shrewdness to roll out new products without repeating mistakes from its recent past.