Is Elon Musk The Donald of Silicon Valley?

The New York Times Op-Ed  writer Bret Stephens published a scurrilous attack on Elon Musk and Tesla last week, calling him “the Donald of Silicon Valley.” At least Stephens recognizes that being compared to “Donald” is quite an insult.

While Elon Musk hardly needs me to defend him, I was taken aback when a close friend said he agreed with large parts of the article. I immediately wanted to explain to my friend why Stephens is mostly wrong. Since I imagine that others  could have reacted similarly, I’m answering my friend in a blog post rather than privately.

(Disclosure: I own some Tesla stock, enough to care about the price of Tesla stock but insignificant in proportion to my total investment portfolio and not even close to being on the radar as a Tesla shareholder. I also have an adult child who works for one of Elon Musk’s other companies.)

Stephens’ core argument is this: "Donald Trump long ago figured out that truth is whatever he thinks he can get away with, a cynical kind of wisdom he rode all the way to the White House and whose consequences we live with every day. With Musk the consequences are hardly as serious, but the essential pattern is the same."

Unfulfilled Promises

It is certainly true that Elon Musk has repeatedly made unfulfilled promises that Tesla will deliver something by a certain date.  Delivery date for mass production of the Tesla Model 3 is the current hot button.  It has slipped repeatedly. Let’s compare that to Trump’s lies.

Trump’s lies are statements that he knows (or should know) are false, like his oft-repeated birther lie: Barack Obama was born in Kenya. A quick look at Politifact's False and Pants-on-Fire lists will give you many other examples.

Musk’s (to use Stephens’ words) "constant tweets of claims that go largely, repeatedly and visibly unfulfilled” are not lies. Musk is predicting the outcome of complex, innovative engineering efforts to do something that’s never been accomplished before. Yes, many companies build cars. But the Model 3 is a built-from-the-ground-up fully-electric car intended to be delivered at a competitive price. To reach promised production volumes, Tesla not only has to be able to manufacture the cars but also has to establish battery production beyond anything ever done before. Some say that when the Model 3 reaches full production volume it will use the entire world’s lithium-ion battery supply.

Unfortunately, large engineering efforts often deliver late and over budget.  This is true even for projects that don’t require substantial innovation. When you’re doing something new and innovative the risks are even higher.

Like many engineers and project managers before him, maybe Musk is being overly optimistic.  But he isn’t lying like “the Donald”.

The Car is a Lemon

Stephens says that “the car is a lemon” because Consumer Reports does not recommend the Model 3. The disqualifying problem was excessive braking distance.

Well, the so-called lemon has been fixed and Consumer Reports now recommends it.  Interestingly, within days of the Consumer Reports finding, Tesla fixed the problem with an over-the-air software update. Consumer Reports’ director of auto testing, Jake Fisher, said “I’ve been at CR for 19 years and tested more than 1,000 cars, and I’ve never seen a car that could improve its track performance with an over-the-air update.”

So, this supposed lemon is not really a lemon and has an innovative service model to boot.

I’m sure that there are other problems lurking in the early versions of the Model 3, just as there are in the first few versions of most products. But the fact that Consumer Reports gave Telsa’s Model S the highest rating of any car it has ever tested leads me to expect that Tesla will eventually get the Model 3 right.

Not Profitable

Stephens says that “[t]he company has rarely turned a profit in its nearly 15-year existence.” So what?  Besides investing his own money (made in prior companies), Musk’s vision and history of delivery has convinced investors to invest for the long-term, for the hope that Tesla will revolutionize the car industry.  Certainly, that’s why I’ve bought Tesla stock, hoping that one day it will become a “real car company” and/or a “real battery company”.

Tesla has already had large impact on the car industry, with most major manufacturers delivering or publicly promising soon to be delivering fully-electric cars. Tesla is also delivering advanced battery technology, not only for cars but also for utility scale electric power grids.

Yes, Tesla eventually needs to become profitable, but there is a long history of visionaries convincing investors to invest for the long-term and eventually becoming big successes. Amazon was unprofitable for years, yet it has revolutionized the retail industry.  This is how our economic system is supposed to work.

Electric Cars are a Terrible Idea

"The terrible idea is that electric cars are the wave of the future, at least for the mass market. Gasoline has advantages in energy density, cost, infrastructure and transportability that electricity doesn’t and won’t for decades.” So says Stephens. He may be right. The history of industry is full of companies that have tried to displace the dominant technology of the day.  Some have failed and some have succeeded (digital cameras anyone?).

We’ll just have to see how this unfolds. To some extent, Tesla's future depends on Tesla itself and to some extent the future depends on events beyond its control.  A geo-political interruption to oil supply could raise the price of gasoline, making electric cars even more compelling; or gas prices could plummet and we could continue to ignore global warming, making electric cars less attractive.  Who knows?

Government Subsidies

Oh, and Stephens places much of the blame for the “Tesla fiasco” on government subsidies. I have mixed opinions about the appropriateness of government subsidies for selected technologies, but let’s be honest: the oil industry receives large government subsidies, delivered through tax preferences like the oil depletion allowance.

The Congressional Budget Office reported in 2015 on tax preference subsidies for fuel, other energy sources, and energy efficiency technologies. From 1916 to 2005, more than two-thirds of energy-related tax preferences went to domestic oil producers. In 2005, this started to shift toward energy-efficient technologies and renewable energy, so that in 2015 about 30% of the $15.8 billion in Federal energy-related tax preferences went to fossil fuels.

For over a century, the oil industry has received large tax preferences. These preferences have been reduced in recent years, but continue even though the oil industry is fully mature.  Moreover, Federal subsidies for renewable energy are temporary and have begun to expire. Subsidies for the already-mature oil industry are permanent.

Regardless of what you think about tax preference subsidies for particular technologies, it is ludicrous to criticize Tesla based on receiving government subsidies, when the mature industry it is trying to disrupt has been receiving massive subsidies for more than a century and continues to do so.

Stephens: "But the Tesla story isn’t just about the perils of misdirected government-led development and clever rent-seeking entrepreneurs. … It’s about hubris and credulity — the hubris of the few to pretend they know the future and the credulity of the many to follow them there."

Elon Musk has already upended the establishment in the aerospace industry by creating SpaceX and demonstrating rocket vehicle reuse for the first time.  (If you haven’t seen the videos of rockets returning to earth, watch one. It will give you goose bumps.) SpaceX has broken the monopoly of the conventional military-industrial companies for rocket launches and is well on its way to dramatically lowering launch costs and increasing launch frequency.

Yeah. Visionaries have the hubris to think that they know the future, or at least that they can help create the future. Musk is probably guilty of this charge. Good for him!

Unhinged

Now here’s the part I agree with: Stephens says that Musk is "prone to unhinged Twitter eruptions” and “[h]e scolds the news media for its purported dishonesty.” I can understand Elon Musk's frustration with news media and financial pundits asking questions about the details of Tesla’s financials when he wants to talk about his vision and his progress towards the vision.  Nevertheless, this kind of behavior doesn’t help Musk's cause.

OK, so Elon Musk is not perfect.

Bottom Line

Calling Elon Musk “the Donald of Silicon Valley” shows how little Stephens understands about the difference between outright lying and painting a vision.  If all Musk did was paint, nobody would care. But he has created two companies that are making a big impact in two important industries.

Musk and Tesla are changing the world for the better. If only we could say the same thing about “the Donald."