Contingency Theory in Tesla

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Tesla is an electric car company that is losing its market share following the increasing incidence of car crashes in addition to loss of Musk’s reputation (Langlois, 2018). Recent findings show that the two events have influenced significant drop of Tesla’s share price to approximately 14% due to the investors’ fear that the company’s performance was very low (Rushe, 2018). A similar claim is made by Shieber (2018) who notes that Tesla shareholders experienced 16% drop of their stock in addition to the erasing of about $8 billion on the company’s public markets. Most people claim that the association of the Tesla’s CEO (Elon Musk) with fraud contributed significantly to the collapse of this company. According to some studies, Musk is the primary cause of Tesla’s woes (Shieber, 2018). Musk impaired with Tesla’s credibility by giving false and misleading information about the company’s decision to go private. However, some researchers indicate that the company’s board also influenced the collapse of Tesla (Rushe, 2018). The information that was tweeted by Musk is claimed to have put Tesla’s credibility to test by showing that either the company’s funding was not secured or the management was incompetent in making decisions that protect investors.

Although Musk had demonstrated signs of Tesla’s collapse, the board which constitute of Musk’s friends and relatives did little to contain the situation. Instead of addressing the issue directly, some of the board members expressed concern over not only the CEO’s behavior but also drug use and tweets. According to Shieber (2018), the board should have aired these concerns at the board level. Similarly, Tesla’s directors should have employed their authority by regulating Musk’s public actions. It was also advisable for them to hold Musk liable for his actions that resulted in loss of Tesla’s billions of dollars. Ultimately it is imperative for the board at Tesla to exercise their authority by increasing its activeness in overseeing the company to protect the company from making more loses.

Adoption of the Contingency Theory

This report seeks to inform the managing director on how adoption of this theory can help address the current issues that are influencing the collapse of Tesla. The areas that will be addressed in include:

i. Brief summary of the Contingency theory

ii. An explanation on how this theory will improve

a. The structure of the organization

b. Financial performance of the organization

c. The motivation of employees

iii. Challenges associated with implementing Contingency Theory

Summary of Contingency Theory

Contingency theory of leadership demonstrates the essence of leaders adjusting their behaviors based on their understanding of a given situation to employ the right leadership style for that situation (Vidal, Campdesuner, & Rodriguez, 2017). According to this theory, success is influenced by variables like leadership style, situational characteristics in addition to the qualities of the followers (Vidal, Campdesuner, & Rodriguez, 2017).

How Contingency Theory would help Tesla

The structure of the organization

The current situation at Tesla is as a result of the adopted organizational structure. According to Sablynski (2012), an organization structure comprises of many elements including formalization, work specialization, and chain of command. Most decisions in Tesla are made mainly by the CEO. However, this theory shows that other factors must be considered for Tesla to be successful. For instance, it will help the management identify what needs to be introduced to improve the performance of the company (Tran & Tian, 2013, p.230). Similarly, this theory will help Tesla shape its organizational structure based on the environmental factors such as economic uncertainties and competition that affect its current performance (Tran & Tian, 2013, p.232). Moreover, Contingency theory will influence the company to shift from a centralized management system to spread out management system. That is, this theory will help the company stop relying on decisions made by one person.

Financial performance of the organization

Contingency theory will help the management of Tesla to predict the company’s financial performance. As a result, it will influence the company to adopt the most effective management practices (Goeminne & George, 2018, p.1). For instance, this theory will help Tesla to consider lowering the cost of Tesla vehicles (Motorhead, 2018) by evaluating the relationship between its financial performance with organizational contingencies such as budget and size and environmental contingencies such as client need (Dropulić, 2013, p.372).

The motivation of employees

The differences at the management level affect the performance of Tesla. Contingency theory will help Tesla improve the social relationship between the top management as well as between the management and employees (Ganescu, 2012, p.1000). Equally, it will help the management find the right leadership style for the situation in Tesla since it facilitates the matching of leadership styles with situations (Vidal, Campdesuner, & Rodriguez, 2017).

Problems with implementing Contingency Theory

Although contingency theories of leadership are effective in addressing organizational situations, leaders experience a lot of challenges in applying them at work. For instance, employees and other members of the organization must be debriefed about the basic principles of this theory before it is implemented in an organization (Dropulić, 2013, p.371). Similarly, application of this theory requires leaders and the management of an organization to understand the leadership traits of every person to match their abilities with situations.


Dropulić, I. (2013). The effect of contingency factors on management control systems: a study of manufacturing companies in Croatia. Economic Research Special Issue.

Ganescu, M. (2012). Assessing corporate social performance from a contingency theory perspective. Procedia Economics and Finance. doi: 10.1016/S2212-5671(12)00264-X

Goeminne, S. & George, B. (2018). New development: Determinants of financial performance in public organizations. Public Money & Management.

Langlois, S. (2018). Tesla is just months from a total collapse, says hedge-fund manager. Available at: total-collapse-says-hedge-fund-manager-2018-03-27 [Accessed Nov. 10, 2018]

Motorhead. (2018). Tesla's collapse in China spells trouble for 2h profits. Available at:

[Accessed Nov. 10, 2018]

Rushe, D. (2018). Tesla shares drop as analysts divided on Musk’s future with the company. The Guardian.

Sablynski, C. (2012). Foundation of Organizational Structure. Available at: [Accessed Nov. 10, 2018]

Shieber, J. (2018). Tesla lost nearly $8 billion in shareholder value this week and its board should be ashamed. Available at: 8-billion-in-shareholder-value-this-week-and-its-board-should-be-ashamed/ [Accessed Nov. 10, 2018]

Tran, Q. & Tian, Y. (2013). Organizational structure: influencing factors and impact on a firm. American Journal of Industrial and Business Management.

Vidal, G., Campdesuner, R., & Rodriguez, A. (2017). Contingency theory to study leadership styles of small businesses owner-managers at Santo Domingo, Ecuador. International Journal of Engineering Business Management.

January 19, 2024
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Elon Musk

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