Tesla's Weekend Starts With Board Shakeup, Ends With Car Explosion

Tesla Inc TSLA traded down Monday morning as investors took note of a couple updates over the three-day weekend.

Boards Changes

On Friday, Tesla announced it would restructure its board from 11 to nine members after former Solarcity CFO Brad Buss and Johnson Publishing CEO Linda Johnson Rice end their terms in June.

The firm will also hold a shareholder vote to cut director terms from three years to two. Venture capitalist Steve Jurvetson and private equity firm founder Antonio Gracias said they would not seek re-election to the board in 2020 if terms are reduced.

Additionally, management will propose changing vote procedures from a supermajority rule requiring approval from the owners of two-thirds shares to a simple majority.

Explosion

Two days after its announcement, Tesla was back in the news doing damage control. A video circulated showing a parked Model S bursting into flames in China. Management said it was investigating the incident with Chinese authorities.

"We immediately sent a team on-site and we're supporting local authorities to establish the facts. From what we know now, no one was harmed," a Tesla spokesperson told CNN Business.

Why It’s Important

The board reduction is intended to “streamline” oversight and let the body run “more nimbly and efficiently,” Tesla said in an SEC filing. The board had added four members over the last five years and experienced “the duplication of certain areas of experience or expertise.”

Some consider the board shakeup critical to Tesla’s growth — and one taken just in time.

“It strikes me as an important step towards more effective corporate governance,” Stephen Diamond, associate professor of law at Santa Clara University, told Bloomberg. “I would call this a board shakeup. The trio of Buss, Gracias and Jurvetson are the heart of the Musk crowd and the old boy network. Maybe this will bring some fresh air and light into the board.”

Notably, only three independent directors will remain to keep a check on the mercurial CEO.

If investors liked Tesla’s governance news, they were less keen to hear that yet another vehicle combusted. Chinese consumers on Weibo reacted to the report with outrage.

Tesla is in a precarious position as it attempts to expand in the massive Chinese market. With China accounting for 20 percent of annual revenues and Tesla eyeing market growth through a Shanghai plant investment, management can't afford to forfeit consumer confidence.