In a statement, Denholm said she believes in Tesla and looks forward to helping Musk and the company "achieve sustainable profitability and drive long-term shareholder value". Most commenters approve of Tesla's decision though there are a few upset by it. She was paid nearly $5 million, mainly in stock options, by the company past year, making her the highest remunerated of its board members.
She also was national finance manager at Toyota Motor Corp.'s operations in Australia, and she's a member of the board at Swiss robotics and industrial machinery maker ABB.
In late September, Musk, who remains chief executive and is also Tesla's biggest investor, agreed to step down as chair for three years and pay a fine in a deal with the US Securities and Exchange Commission over tweets he made about taking the firm into private ownership.
Denholm is one of the two female directors on Tesla's nine-member board since 2014. She will assume the chairman's role immediately, the company said.
Tesla's court-approved settlement agreement with the SEC requires the company to appoint an "independent" chairman, although it does not define what it considers to be so.
"But it does violate the spirit of the settlement, which was to change the culture of the board so there was a check on Musk's worst instincts", he added.
Tesla earned a $311.5 million net profit during the third-quarter, delivering the first step of a promise from Musk to post sustainable profits.
Tesla's conflict with the SEC began in August, when Musk tweeted that he was taking the auto company private and had "funding secured" at $420 a share.
The company had until next week to name the new chairman. And the SEC is still a factor - Tesla received a subpoena last week from the SEC concerning Model 3 production forecasts in 2017, according to The Verge.
Board directors are reportedly planning to create a permanent committee with the sole goal being to ensure the implementation of the terms of the SEC settlement.
Tesla has seen months of turbulence since Musk's infamous tweet.
Even after the settlement was announced, Mr Musk taunted the SEC, calling it the "Shortseller Enrichment Commission" before snidely praising it for "doing incredible work".