1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
John Engle
John Engle
Articles (121) 

Extraordinary Popular Delusions and the Mad Genius of Elon Musk

Much of the entrepreneur’s sci-fi tech has too much fiction and not enough science

October 12, 2017 | About:

“Charisma is the ability to influence without logic.” – Quentin Crisp

Elon Musk has developed a reputation for bringing science fiction to life. In all fairness to the billionaire founder of Tesla Inc. (NASDAQ:TSLA) and SpaceX, it is a reputation well earned.

Musk has cultivated an image of far-sighted genius. He helped pioneer a new era of electric cars and has done what many thought impossible: opened the door to commercial space travel. He has brought together some of the finest scientific and engineering minds to produce true marvels of innovation, from rockets to batteries. Thus, it is not too terribly surprising that much of the general public, as well as the investment community, has come to view Musk’s visions with a degree of prophetic adulation.

Yet, for all the impressive innovation he has helped spur, Musk’s status as futurist-in-chief has shifted from exciting to dangerous – and it has severely distorted market perceptions of his businesses. The music will eventually stop. When it does, a lot of people are going to pay dearly for having bought into what is, ultimately, little more than big hype.

From Space Age reality to sci-fi fantasy

The main problem is Musk’s fantastical visions frequently are just that: fantastical. I have already addressed in a previous article why Tesla is radically overvalued – the recent advent of even more competitors even as Tesla’s own production hits bottlenecks has done little to soften that negative picture.

But Tesla’s auto business, at least, is a real company producing a real product. Compare that to the Hyperloop, a proposed high-speed transit system Musk began to popularize in 2012, which he characterized in an interview as a “cross between a Concorde and a railgun and an air hockey table.” The idea is, essentially, to create long, inter-city tubes that are depressurized to the point of near-vacuum in order to launch passenger-carrying pods at hypersonic speeds.

Traveling at 700 miles per hour between cities and not having to drive or deal with the drudgery of ordinary commuting? Sounds great – until reality starts to bite.

The reality is the Hyperloop is a physical impossibility. For all of recent pop culture’s obsession with using science to solve problems, materials science is a less forgiving mistress than the tech correspondents at BuzzFeed would have us believe. Just think about it for a moment. This is essentially a pipeline that is being converted to near-vacuum – that means the pressure on the structure would come in at around 10 tons per square meter. Dealing with expansion issues, constant repair concerns and wear and tear from multi-ton capsules barreling down the pipe at supersonic speeds would result in enormous costs even if we can build a stable structure. Worse still, virtually any damage to the structure of the tube would cause catastrophic impact, likely destroying large stretches of the track and probably killing anyone unlucky enough to be inside at the time of the system's failure.

A cardinal rule of transportation system is building in durability. The Hyperloop is by its very nature an exceptionally fragile system, prone to catastrophic failure. Yet many cities are bidding to host the first Hyperloop. They seem to have been taken in hook, line and sinker by the promise the Hyperloop will somehow defy the laws of physics and be a cheaper alternative to conventional travel.

It truly boggles the mind that city planners and mayors, usually amongst the soberest of administrators, can look at the cost projections and not immediately balk at their sheer unreality. The issue seems to be, fundamentally, the Hyperloop represents an out-of-context problem, to borrow a term from the late, great science fiction author Iain M. Banks. It is a concept so far outside of their normal reality, they have to take it on the advice of the propagators who wear the trappings of expertise. Unfortunately, those experts appear to be little better than the monorail salesman of "The Simpsons" fame.

Now, some might take exception to putting all this on the shoulders of Musk – after all, he is not leading the development of the Hyperloop and simply gave his blessing to the companies seeking to bring it to reality, such as Hyperloop One. Yet they are clearly using his brand of scientific invulnerability to push their junk science onto a credulous public. He stands behind the “science” – such as there is. His imprimatur is clearly worth a great deal: Hyperloop One has raised $100 million in venture capital funding – evidently from people more interested in fantastical promises than serious engineering challenges.

A sucker born every minute

Musk’s huge overpromises stretch beyond novelties like the Hyperloop. Returning to his actual companies, we can see the same pattern of behavior: promises about the number of new Tesla vehicles that will be coming off the assembly face constant revision, questions about SpaceX’s path to profitability are met with hand-waving and obfuscation, challenges to the wisdom of Tesla’s buying Solar City (another Musk-backed company that has been in the red from the word go). The list goes on ad nauseam.

What is so amazing is Musk has managed to keep the house of cards upright despite the buffeting forces of reality constantly beating against his futurist empire. Much of his success comes back to the notion of out-of-context problems. Because his companies address entirely new markets or are so radically different from what else is available, he is able to get away with making opaque statements and overambitious promises. In short, because investors and the public do not know how to treat Musk’s businesses, they have reverted to the wisdom of the expert, i.e., Musk himself.

Another key skill Musk has cultivated is his ability to shift the topic of discussion and drown bad news in the next big wild idea. Take the Tesla Model 3’s poor rollout. Rather than doing what a normal business would, namely to focus all energies on fixing the problem, Musk has instead floated trial balloons of varying levels of grandiosity. The most egregious of these was his mooting on Twitter the idea that Tesla (presumably through Solar City) could rebuild Puerto Rico’s shattered power grid. The territory’s governor’s response that he was willing to talk about it turned an utterly nonsensical idea into something real. Since Tesla has never built a power grid, or rebuilt a disaster area, such a promise would look like madness if it were uttered from the lips of anyone else. But from Musk, it was true to form.

The Ozymandias of Silicon Valley

Musk’s great skill has been in convincing people he can work miracles – and has bolstered that conviction by occasionally delivering. Yet even he cannot defy basic scientific realities, nor those of finance. His businesses carry significant debt, do not make profits and he himself has pledged much of his fortune to secure various debt financing deals. When the music stops, it will not just take down those who believe in Musk – it could sink him as well.

If he does survive the inevitable collision between his empire and reality, he may find life as an ordinary entrepreneur far more difficult than his status of miracle worker.

Disclosure: I/We have no positions in any of the stocks mentioned.

About the author:

John Engle
John Engle is President of Almington Capital - Merchant Bankers. John specializes in value and special situation strategies. He holds a Bachelor's degree in economics from Trinity College Dublin and an MBA from the University of Oxford.

Rating: 3.9/5 (14 votes)



Praveen Chawla
Praveen Chawla premium member - 9 months ago

Another guy comes to mind - however opposite in every respect but far more dangerous . Some how he has managed to BS his way to become President . Unfortunately he could sink us all. With Musk thankfully its only money.

Please leave your comment:

Performances of the stocks mentioned by John Engle

User Generated Screeners

pbarker46Small cap dividend
pbarker46Large cap dividend
DavidfansunExtreme P/S Alert
bknightActual Owner Earnings
taylorHigh Sales Growth
taylorHigh Growth
OGCAMGGreenblatt buys w/out banks
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat