Tesla was ordered to appoint an independent chair to its board under Mr Musk’s settlement with the US Securities and Exchange Commission (SEC), after claims he committed fraud by tweeting that he had “funding secured” to take the company private.
It is hoped a strong outside voice will rein in Mr Musk who remains chief executive and is hugely powerful at the electric car company.
Ms Denholm joins from Australian telecoms company Telstra where she is head of strategy and chief financial officer. She has served as a director on Tesla’s board since 2014.
“I believe in this company, I believe in its mission and I look forward to helping Elon and the Tesla team achieve sustainable profitability and drive long-term shareholder value,” Ms Denholm said.
Mr Musk hailed Ms Denholm’s “extensive experience” in the technology and automotive industries, which she has gained at Silicon Valley computing firm Sun Microsystems, Toyota, Arthur Andersen and, networking equipment firm Juniper Networks.
Investors will be hoping the new appointment can draw a line under a tumultuous period for Tesla fuelled by Mr Musk’s erratic behaviour.
The company’s share price shot up after the mercurial chief executive tweeted that he had secured funding to take Tesla private for $420 (£320) a share.
He later claimed that he had chosen the number $420 as a joke because of its significance in “marijuana culture”.
The tweet had no basis according to the SEC which charged him with securities fraud for misleading investors.
Mr Musk agreed to pay a $20m fine, and step down as Tesla’s chairman for three years, to settle the charges that could have forced him to leave the company. Tesla also accepted a $20m fine.
Days later, he took aim at the SEC, mockingly labelling it the “Shortseller Enrichment Commission” in reference to investors who benefited from betting against Tesla when news of the fraud claims was made public, sending the company’s share price down.