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Tesla

Tesla closes in on China factory plot worth US$145 million as James Murdoch looks set to take Elon Musk’s place as chairman

Tesla is the sole bidder for a plot of land with an auction price of about 1 billion yuan (US$145 million). Meanwhile, James Murdoch, son of Rupert, may become the new Tesla chairman

PUBLISHED : Thursday, 11 October, 2018, 7:47am
UPDATED : Thursday, 11 October, 2018, 7:46am

Tesla is in the process of buying land in Shanghai for its first factory outside the US, according to people with direct knowledge of the matter, pushing ahead with plans to set up production in China after months of tumult involving CEO Elon Musk, who is stepping down as chairman.

The carmaker is the sole bidder for a plot of land with an auction price of about 1 billion yuan (US$145 million), the people said, asking not to be identified as the information isn’t public. A decision by the Shanghai government to allocate the land to Tesla could be made as soon as this month, they said.

Also on Wednesday, it emerged that James Murdoch, the outgoing CEO of Twenty-First Century Fox, is the lead candidate to replace Musk as Tesla’s chairman.

Tesla reached a preliminary agreement with Shanghai authorities in July to build a factory that it said will eventually produce 500,000 battery-powered vehicles annually – more than what its lone US assembly plant has made.

The carmaker is considering raising some of the US$5 billion it intends to invest in the plant near Shanghai from local partners, a person familiar with the plans said on August 1.

Musk told analysts on an earnings call later that day that he expected it would take about $2 billion worth of investment for the factory to be able to produce around 250,000 vehicles a year.

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The Shanghai government didn’t respond to a request for comment sent outside normal business hours. Representatives for Tesla also didn’t immediately comment. The company has said the China factory will augment existing production and that its US manufacturing operations won’t be affected.

Setting up manufacturing in China will enable the Palo Alto, California-based company to avoid paying import duties as high as 40 per cent and offer cheaper cars in the world’s biggest market for electric vehicles.

It will also be a bright spot for the company, which has been battered with poor publicity over Musk’s erratic behaviour of late – setting up what is likely to be his replacement as chairman with James Murdoch.

On Wednesday, the Financial Times reported that two people briefed on meetings over Musk’s replacement said that Murdoch, already an independent director of Tesla, has signalled he wants the job.

The son of Fox mogul Rupert Murdoch, he joined Tesla’s board last year after years of work with media companies. He has no experience in manufacturing and has never led a company that makes cars or electric vehicles.

Murdoch could not immediately be reached for comment. Tesla did not respond to a request for comment. Twenty-First Century Fox declined to comment.

Musk is the public face of Tesla, and any chairman would have to contend with his powerful personality. Thanks to his vision and audacious showmanship, Tesla’s valuation has at times eclipsed that of traditional, established US carmakers with billions in revenues and the company has garnered legions of fans, despite repeated production issues.

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“The question when it comes to James Murdoch is, ‘Is he the guy who’ll be able to establish that level of authority with Elon Musk?’” asked Abby Adlerman, CEO of Boardspan, a corporate governance consulting company.

Investor concerns that Tesla’s board was too closely tied to Musk led to the company’s addition of two independent directors, including Murdoch, in July 2017.

Earlier this year, leading US proxy advisers Glass Lewis & Co and Institutional Shareholder Services, and union-affiliated investment adviser CtW Investment Group, had recommended investors cast votes “against” the re-election of Murdoch as a Tesla director at the company’s annual meeting held on June 5.

While CtW cited a lack of relevant experience and a “troubled history as an executive and director”, both proxy firms warned that Murdoch already served on too many boards. He is currently on the boards of Twenty-First Century Fox and News Corp. He stepped down from the board of Sky Plc on Tuesday following the completion of Comcast’s takeover.

Murdoch was forced out as chairman of Sky, then BSkyB, in 2012 after being embroiled in Britain’s phone-hacking scandal. He returned to Sky’s board in 2016 after rebuilding his career at Fox.

Glass Lewis research director Courteney Keatinge said on Wednesday that while Murdoch’s departure from Sky could alleviate some concerns, the Tesla chairmanship would still require a big time commitment as the company faces pressures on many fronts.

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“I would still have reservations about the time he would be able to allot to this,” Keatinge said.

According to the FT report, external options were still being considered.

Tesla has until November 13 to appoint an independent chairman of the board, as part of settlements reached last month between Tesla, Musk and US regulators in the wake of Musk tweeting in August that he had secured funding to take the electric car maker private.

The settlement capped months of debate and some investor calls for stronger oversight of Musk, whose recent public behaviour raised concerns about his ability to steer the money-losing company through a rocky phase of growth.

The US Securities and Exchange Commission, which said Musk’s tweeted statements were fraudulent, allowed the billionaire to retain his role as CEO while requiring he give up his chairmanship.

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In a vote of confidence for Musk, shareholder T. Rowe Price Group Inc said in a regulatory filing on Wednesday that it had raised its stake by nearly half to 10.2 per cent at the end of September from just under 7 per cent in June.

Murdoch is set to be succeeded by his brother Lachlan Murdoch as Twenty-First Century Fox CEO, after the media group completes the sale of bulk of its assets to Walt Disney.