Tesla's Leadership Crossroads: Can a Musk Successor Steer the EV Giant Back to Growth?

The Wall Street Journal’s revelation that Tesla’s board has initiated a search for a successor to CEO Elon Musk marks a pivotal moment for the EV pioneer. With profits plummeting 71% in Q1 2025, sales collapsing in key markets, and Musk’s attention splintered between Tesla, SpaceX, and his controversial role as head of the U.S. Department of Government Efficiency (DOGE), the board’s move signals a growing urgency to stabilize a company once synonymous with Musk’s vision.

The question now is not just who might replace Musk, but whether any leader can restore investor confidence, navigate Tesla’s shifting priorities, and mitigate the risks of over-reliance on a charismatic but increasingly distracted founder.

The Catalysts for Change

Tesla’s downward spiral in early 2025 is undeniable. First-quarter sales dropped sharply in China, Germany, and California—the company’s three largest markets—while its $1.5 trillion valuation evaporated, with shares falling 3% in just months. The Cybertruck, once hailed as a game-changer, has underperformed, and Musk’s pivot toward robotics and AI has yet to offset declining EV demand. Compounding these issues is Musk’s political involvement, including his vocal support for Germany’s far-right AfD party, which triggered protests at Tesla’s Berlin plant and alienated investors.

Musk’s role as head of DOGE, a position that consumed 20% of his time, further strained Tesla’s operations. Board members reportedly grew frustrated with his erratic leadership, noting he sometimes required briefings on core business decisions. Even Musk’s pledge to “allocate far more time to Tesla” starting in May 2025 has done little to quiet concerns about his divided focus.

Who’s in the Running?

The board’s search spans internal and external candidates, each offering distinct strengths but also potential pitfalls:

Internal Candidates

1. Tom Zhu: As head of Tesla’s China operations, Zhu has been instrumental in navigating regulatory hurdles and driving growth in Tesla’s largest market. His deep operational expertise could be a stabilizing force, but his narrow focus on China might limit his global vision.
2. JB Straubel: The co-founder and former CTO of Tesla, now CEO of battery recycling startup Redwood Materials, brings unparalleled technical knowledge. However, his current role outside Tesla raises questions about availability and whether his niche expertise in batteries can translate to broader leadership.

External Candidates

1. Stella Li (BYD CEO): A leader in scaling EV production, Li’s experience in China’s fiercely competitive market could help Tesla regain ground there. Yet, her ties to a direct competitor might raise antitrust concerns.
2. John Krafcik (Former Waymo CEO): A seasoned automotive executive with expertise in autonomous driving, Krafcik could help Tesla reclaim its edge in self-driving tech. His corporate governance background might also address governance gaps.
3. José Muñoz (Former Hyundai Europe CEO): A global sales and distribution specialist, Muñoz could revitalize Tesla’s struggling sales and distribution networks. However, his traditional automaker background might clash with Tesla’s disruptor ethos.

Market Reaction and Financial Metrics

The board’s actions have not yet reversed Tesla’s slide. show a peak of $300+ in late 2024, followed by a 36% plunge in early 2025—the worst quarterly performance in three years. Meanwhile, BYD’s stock has surged 40% over the same period, reflecting investor skepticism about Tesla’s leadership and execution.

Profit margins have also cratered: Tesla’s net margin dropped from 14.7% in 2023 to just 4.2% in Q1 2025. This stark decline underscores the urgency of finding a leader capable of balancing Musk’s visionary goals with operational discipline.

Governance Challenges and Board Dynamics

The board’s move reflects broader institutional shifts. A committee has been formed to revise Musk’s compensation structure—a direct response to a Delaware court’s invalidation of his $56 billion package in 2024. Additionally, the push to add an independent director aims to address longstanding criticisms of the board’s deference to Musk.

Yet, Musk’s 12.8% ownership stake and loyal shareholder base (including figures like Ross Gerber, who recently demanded Musk step down) create a volatile balancing act. A leadership change could trigger legal battles or shareholder revolts if Musk perceives his vision being diluted.

Investment Implications

For investors, the search for a successor is a double-edged sword. On one hand, it signals a reckoning with Tesla’s reliance on Musk—a risk that has long haunted the stock. On the other, a credible leader could stabilize the company, revive innovation, and restore investor confidence.

Key Risks:
- Leadership Gaps: Musk’s charisma and technical intuition are irreplaceable. Even top candidates may struggle to balance his vision with operational rigor.
- Political Fallout: Musk’s global political entanglements (e.g., DOGE, AfD support) could further alienate investors and regulators.
- Competitor Surge: BYD and Hyundai’s gains highlight Tesla’s waning dominance in EVs.

Opportunities:
- Governance Reforms: A stronger board and independent leadership could reduce reliance on Musk’s “gut decisions” and improve long-term planning.
- Market Recovery: A renewed focus on core EV markets like China and Europe could reverse sales declines.

Conclusion: A High-Stakes Gamble

Tesla’s search for a successor is as much about governance as it is about leadership. With Musk’s stock plummeting and investor patience thinning, the board’s move is a necessary step—but the outcome hinges on two critical factors:

1. Who leads Tesla next? An internal candidate like Zhu offers continuity but risks a narrow focus, while an external leader like Krafcik could bring fresh expertise but face cultural hurdles.
2. Can Musk refocus? His May 2025 pledge to prioritize Tesla is unproven. If his distractions persist, the board may have no choice but to accelerate the succession process.

For now, investors should remain cautious. Tesla’s valuation has dropped from $1.5 trillion to $1 trillion in just six months, and its profit margin is half its 2023 levels. While a strong successor could turn the tide, the odds of a smooth transition are low. Until then, Tesla remains a high-risk bet—its future as tied to Musk’s choices as ever.