Tesla Motors CEO can't handle the truth

July 9, 2010 | Owen Thomas

Elon Musk, the CEO of electric-car startup Tesla Motors and rocket-launcher SpaceX, should be applauded for the mighty challenges he’s taken on and the powers of persuasion he has deployed to build his companies. But along the way, he discovered that he could stretch the truth, casually and frequently, as a shortcut to getting things done.

Clad in a sheen of bubbly optimism, his mendacity nonetheless has consequences. Through Tesla’s IPO, he has now taken hundreds of millions of dollars from taxpayers and public investors who expect not just a return but square dealing from the man who is managing their company for them.

So where has Musk spun the facts?

Critical reporting

Well, let’s go with the most recent one: He’s lied about me, and VentureBeat, apparently in retaliation for our aggressive and accurate reporting.

In an article published by the Huffington Post, he calls me “Silicon Valley’s Jayson Blair.” He accused me of making errors, but never once specified them. Here’s the truth: I cited Musk’s own words from court filings, which we had paid a freelance reporter to find and copy, legally, from a courthouse in Van Nuys, Calif. I also interviewed a host of other sources. I emailed Musk questions and called his lawyer repeatedly before publishing. We went to extra lengths to nail down the facts: Before publishing, VentureBeat editor-in-chief Matt Marshall called Musk and had interviews with at least three Tesla board members.

We make no apologies for seeking the truth about Tesla Motors and Elon Musk, a vital company and an iconic entrepreneur of Silicon Valley. Our reporting (here’s one example of our series) helped investors get a more truthful picture of a company that was going public and the man behind it.

Musk also accused me of “collaborating” with the lawyer representing Justine Musk, his ex-wife, in their divorce case. Also false: I picked up the phone and called her lawyer, and he had the courtesy to answer my questions.

Now, we should all be used to Musk insulting journalists who don’t report what they’re told to. But calling someone a “Jayson Blair” is a troubling assertion to anyone who prefers his insults to have a factual basis.

When I ran fact-checking at Business 2.0 magazine, here’s what I would have asked the writer to prove before I’d let him get away with that kind of factual assertion: So, you want to compare this Owen Thomas person to one of journalism’s most infamous miscreants. Is Owen Thomas a drug addict? Is Owen Thomas mentally unstable? Has Owen Thomas plagiarized or invented facts? The answer to all of those, in case you were curious, is no.

And so out comes the chief of reporters’ red pen.

The one specific claim Musk made about my reputation was that I had written that he was broke. Not true. If you review the story I reported on his personal finances and their impact on Tesla, you’ll see I merely quoted Musk’s own words from his divorce filing, in which he said that he “ran out of cash.”

When VentureBeat first started raising questions about Musk’s personal finances, his expensive divorce case, and the impact they might have on Tesla’s IPO, a Tesla spokesman initially said that the company had no plans to update its IPO prospectus to reflect our reporting. However, in the end, Tesla updated its SEC filings to acknowledge substantially all of the concerns we raised as potential risk factors investors should consider.

That is the ultimate correction of the record, and it stands today.

Musk’s personal spending

There are other whoppers in Musk’s piece, such as the suggestion that of the $200,000 per month he’s spending, a mere $30,000 a month is going to his own personal household expenses, with the rest going to legal fees in his divorce case. Actually, the figure he told a court is $98,023 a month, according to filings in that case, including $50,000 a month in rent.

The founding of Tesla Motors

An aside to Musk: Making false statements is something the law frowns on.

Oh, but wait, Musk should already know that. He and I met in San Francisco in 2008 for drinks, and over the course of the evening, he made several disparaging remarks about Tesla Motors cofounder Martin Eberhard’s management of the company before Musk had ousted him as CEO — specifically, Musk alleged, for misrepresenting the cost of making the Tesla Roadster. In 2009, Eberhard sued Musk for defamation, citing the comments Musk had made to me, among others. Musk filed a scathing response to the lawsuit, repeating many of his negative claims about Eberhard.

Then it headed to mediation, and the case was settled. Eberhard’s lawyer declared himself “very pleased” with the result, and Tesla issued a press release in which Musk said that Eberhard had been “indispensable” to the company in its early days.

The safety of customers’ deposits

When Tesla’s finances were at their most perilous, in the winter of 2008 and spring of 2009, the company was dependent on advance reservation payments from customers for cash flow. The company’s cash balance had run down to $9 million, and the company was struggling to raise $40 million in convertible debt. (He announced that that round had closed in November 2008, while in fact, according to Tesla’s SEC filings, it did not close until March 2009.) To raise funds in the meantime, Tesla began taking deposits on the Model S sedan, even though that car was far from production, and continued taking deposits on Roadsters. Musk first told customers that he would personally guarantee the deposits they were placing, “even in the worst case of an Armageddon scenario.” Then he said that their deposits were completely at risk and they could lose all their money. One of those statements had to be false.

Musk’s history as an entrepreneur

In persuading other investors to back Tesla Motors, Musk has frequently traded on his past success as an entrepreneur at companies like Zip2 and PayPal. But Zip2 was so troubled that one of its venture capitalists, Derek Proudian, had to step in as acting CEO, a move rarely seen at venture-backed companies. And Musk was ousted as CEO of PayPal by his own management team. To this day, Musk tells a version of PayPal’s history that few who were there at the time agree with.

Tesla’s investors

Most dangerously, Musk has repeatedly made misrepresentations about Tesla’s finances. In February 2009, he sent a letter to customers saying that Tesla would start getting funds from a Department of Energy loan in four to five months. In fact, it had not received the loan at that point and there was no certainty it would get it, a point a Tesla spokeswoman had to clarify. (Tricky, that, saying your CEO had misrepresented the facts without calling him a liar.)

He also said Tesla would turn profitable in 2009. Of course, it didn’t, as the company’s published financials later revealed. (Musk later claimed, using questionable accounting whose details have never been revealed, that the company had been profitable for one month of the year.)

In an interview for the May 2009 issue of Car and Driver, he told that magazine’s readers that General Electric had become an investor. It hadn’t, and it never did, according to Andy Katell, a GE spokesman who spoke with me at the time.

The Toyota deal

After unveiling an agreement to buy the NUMMI plant in Fremont, Calif., from the Toyota-backed joint venture which owned it, Musk claimed that Tesla and Toyota planned to jointly develop several models of cars and build them at NUMMI. It’s true that he got Toyota CEO Akio Toyoda to stand next to him and make grand promises. But in fact, as the company later revealed in its SEC filings, Tesla and Toyota had no agreement to develop any cars, and there was no guarantee that they ever would.

The pity of it all is this: I don’t believe Musk twists the truth out of malice. Rather, at this point, it may well be out of habit. He’s so used to getting his way that future possibilities just seem like present realities to him. And pragmatically, it’s worked. Whenever Tesla has been in a bind, Musk has spun his way out of trouble.

It’s a character trait of which elements are found among many successful entrepreneurs: the compelling presentation of an alternate reality in the hopes that so many people will sign on to the vision that it comes true. Apple CEO Steve Jobs, for example, is so masterful at this that people speak of his reality distortion field. But Musk may have taken distortion to extremes.

The question now is whether Musk’s past habits will serve him well as the CEO of a publicly traded company. Already, it seems the investors who have entrusted Musk with hundreds of millions of dollars are having doubts. With shares of Tesla having already fallen by nearly half since their post-IPO pop, perhaps Musk’s bubble is finally deflating.

But those who are still sticking with the company should ask themselves this: Has Tesla adequately disclosed to investors the risk of its CEO’s curious relationship with the truth?

Next Story: Blizzard Entertainment relents on the use of real names in comments for its game forums
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About the Author, Owen Thomas

Owen Thomas is the executive editor of VentureBeat. His career has ranged from Suck.com to the Red Herring, from Time to Valleywag, but he's consistently been interested in the transformative effects of innovation on business and culture. Also, he loves you but has an odd way of showing it.

http://twitter.com/rohit_x_ rohit sharma

Owen, Factual, objective reporting – we could use more of this kind of writing in the valley.
http://twitter.com/PreThemer Pre

I think this article shows more Owen's bias than much else. Hey Owen, when was your last rocket launch? EV launch? …anything? Move on.
DrTaras

I’ve had a 2008 & now 2010 Tesla Roadster and love the car! I have TSLA stock and satisfied that we are building something different for the betterment of the country and the world…Owen Thomas’ article was extremely factually based. I thought this line cracked to the core: “I don’t believe Musk twists the truth out of malice. Rather, at this point, it may well be out of habit. He’s so used to getting his way that future possibilities just seem like present realities to him.”I believe in the company and want the best for it, but “sunlight is the best disinfectant.”
gkouri
gkouri

I agree with Pre that this article serves very little other than to point out Owen's bias as well as the fact that he is guilty of the same misrepresentations of which he is accusing Musk in this article. While I do not possess the Business 2.0 “fact-checking” background he refers to, I can speak first hand to some of the misleading information in this article. Firstly, the author misrepresents that Musk “personally guaranteed” the deposits on the Tesla Model S sedans. Musk did in fact guarantee deposits on the Tesla Roadster (all of which have since been delivered) however the author misleads us by suggesting that he recanted on this promise and points us to an article regarding the second Tesla vehicle called the Model S where the deposits were never guaranteed. Prior to this, Musk had guaranteed the deposits of people who were taking a real chance that he could deliver this electric car despite all of the naysayers.He kept this promise – long before the IPO..The author also suggest that Tesla started taking funds to finance a cash flow problem. Where did this come from? The financing, by the authors admission from the SEC documents, took place in March 2009. The Tesla Model S was only unveiled after this in April 2009. How were the deposits from the model S being used to finance prior activities? On the contrary, as I understand it, Tesla did not want to launch the Model S but as a part of a $425 million federal government financing was forced to move up the launch of the Family sedan Model S so that the government would not be perceived as financing a sports car company. Who's fact's are correct?On what basis does the author assert that Zip2 was “so-troubled”? I worked at the company as an executive. There was never any financing at a valuation which did not far surpass the prior valuations. Proudian took over after the Board heard a request of the Zip2 management team to do so. The company sold for $307 million – all cash – to COMPAQ and was the most successful Internet investment by Proudian's firm. By the way, the core of the company was founded on another of Musk's idea's – a local geocentric search platform delivering locally relevant advertising. Zip2 was started in 1995 – long before Google or Google local was developed. For the author to have previously suggested that Musk “ran out of cash” could easily mislead people into thinking that he is “broke” or has very little net worth. On the other hand, a more accurate description might have been to suggest that he is someone who is probably worth close to a billion dollars between his three companies but who has also has run into a liquidity crisis- like many other successful people have in the past 18 months. This would have painted a more accurate description of the facts.Earlier this year, Musk was named the automotive executive of the Year. While reporters and readers may misinterpret things from time to time, certainly one cannot fool their peers so easily. Why would such a prominent small group of companies with a worldwide perspective do such a thing? Did they ever consider Eberhardt as candidate for this award? What about the fact that Musk has launched a virtual bullseye with the his SpaceX rocket launch and a new $500 million contract with Iridium in the past 5 weeks. All of this while working on the Tesla IPO and dealing with a divorce.It's a wonder he doesn't have time to help you with your facts. Musk is one of the brightest minds in the country and is doing great things. People will always be jealous. I am certain that some of the facts that you assert are indeed correct. But if you want to worry about misrepresentations, take your fact checking background to wall street and cut a little slack to the people who are actually producing something positive for this country.The simple fact is, everyone who has invested with him since he began his career in 1995 has made money. Don't mislead people that his skill set should be questioned over silly things such as his personal monthly expenses. Stick to the facts that count.
nedned

These transgressions are true of many entrepreneurs. While I appreciate that this piece is carefully pulled together, there seems to be an underlying anger that undermines the credibility of both the author and Musk. TSLA is now public. Hug it out and place a bet.
http://twitter.com/ppratik96 Pratik

You are making me extremely jealous right now!!!
http://twitter.com/Yolto Yolto

Parrots should not be allowed to argue with businessmen; that's all I can say.
http://benmetcalfe.com/ Ben Metcalfe

The gist of your comment is summed up by your last par: that everyone who has invested in Musk has made money, so let's not worry about the rest of the issues.While you try to push back on some of the figures and timeline of events Owen Thomas has raised, you fail to address (or even acknowledge) any of the personal/character issues raised.It's clear you are only concerned about the money/financial issues at play here. I guess what you are missing is that the personal character of a notable valley entrepreneur (and now CEO of a public company) is newsworthy and an appropriate subject of public examination.I'm not financially invested in Tesla and so I really couldn't give a shit whether everyone invested in Elon has made money in the past/will make money in the future (as an aside, I'm minded by the old trading adage “Past performance is not necessarily indicative of future results”). But I am very interested in the behavior, character and conduct of a figurehead of the local industry and entrepreneur scene I am involved with. It has a wider reflection and ramification on all of us.
http://twitter.com/jhtrico1850 John

Yeah, I don't like Tesla. Their business model is knowing friends in the right place to buy stuff no viable model could survive on.
gkouri

Ben – the point you make is a good one. The character of an individual is extremely important. I happen to know Musk having worked with him in his first company in 1995. If I started running on about what a great guy he is, it would not have been on point in my earlier response. The author made a list of points suggesting a pattern of mis-truth's on Elon's part. Knowing many of these to be false, I felt compelled to address them one at a time in my prior post. Any single one is not a big deal, but for an article which is supposed to be revealing a pattern of inconsistent statements to be so inaccurate on so many counts is entirely unacceptable. To my knowledge, Elon has never been arrested nor has there been a sort of suggestion of any wrongdoing or impropriety on his part in any of his companies. I know him to be a person of extremely high character and integrity who is committed to achieving his final objective with a drive and a passion unlike any I have ever seen. The downside of this type of personality is that his determination can create challenges for some of the people who work with him and eventually fallout will be inevitable in some instances. The suggestion by the author that Musk is not telling the truth in an effort to take Tesla public is just a fallacy. In this difficult IPO environment, would Goldman Sachs and Morgan Stanley really take a chance on their reputations if they were concerned about Musks reputation or the viability of the company?I must say that I cannot agree with your assertion that past performance is not indicative of future results. That is legal protection for people who more often than not are taking advantage of someone else in some way. The most skilled investors in the world will always place their bets on talent. If he breaks their trust by lying or deceiving along the way in some relevant or significant manner, he will be penalized by the SEC, the Board's he sits on, or some other authority. As a result, investors will stop supporting him – fast. I was making the point in my post that he has always delivered because people of intelligence who are willing to invest capital believe in him and see no verifiable reason not to support him because of his character. Finally, what sets him apart from many if not most entrepreneurs in Silicon Valley and on Wall Street is that he is willing to bet literally everything he has financially on the success of his ventures. That tells me a great about his character – this is not someone trying to “fool” his investors. To see him in a cash flow problem and be criticized because of his determination to keep his companies alive with his own resources during difficult times is just plain wrong. This author has had it in for him for a while and he should be accountable for his mis-truths.
http://twitter.com/hpagey himanshu

Looks like someone is jealous. Bottomline is TSLA has a great product.
http://twitter.com/sharemefg Fred Grott

Owen your fact checking blows goats..The combination of court records, sec records, etc should have been enough to do some quality fact checking instead of the above garbage..An example, many financial transactions do not happen immediately but over several months…and most CEOs announce it at the beginning to mid of that time period such as Musk has done..Toyota Tesla deal just finalized..You have th e same problem with fact checking as Julia Allison..
http://www.technovia.co.uk Ian Betteridge

What has that got to do with anything?What Owen is saying is factually accurate. There's no bias in reporting the facts. If you don't like the fact that your hero has feet of clay, that's really just tough.
http://www.technovia.co.uk Ian Betteridge

Putting a Tesla battery pack into a test frame car doesn't amount to “a deal”, unless buying a few batteries is “a deal”. I really think you should check your own facts before accusing others.
http://twitter.com/LEADSExplorer LEADSExplorer

At $50,000 rent / month Elon Musk is not an entrepreneur. A real entrepreneur would use that money to invest in his own company.Apparently Musk doesn't believe in his Tesla company as he spends all this money and the IPO gives him the opportunity to keep spending and spending even more.Many of the Venturebeat readers probably life on $50,000 / year.
http://cigarreader.com vbcontributor

I'll admit it: I like reading this stuff. Seriously. Keep it coming. I read Owen for a reason.
http://sebmos.at/ Sebastian

What Owen writes seems to be factually correct. It's not. That's a problem. (I agree that he doesn't need to start rockets to be allowed to criticise Musk.)I'm not suggesting he's lying intentionally. Most likely it's just a clever link-baiting campaign. It's sad though. He could do that without attacking him on the probably most sensitive subject there is, which is his failed marriage.
http://www.technovia.co.uk Ian Betteridge

But Sebastian, *what* exactly isn't factually correct? Could you identify the points, and show why they're wrong?
ph0ust

The problem with Owen's reporting is that he is quite clearly cherry picking facts, then twisting their context (to put it lightly) so that he can not report, but craft a story. Story-telling is not reporting. In fact, I believe that is what we call tabloid journalism. This kind of shit is not what I go to VentureBeat for. In fact, if VB does not make a statement about why they seem to be behind tabloid journalism I may never come back.I don't know Musk, nor do I own one of his cars. But seriously, the guy is taking on the car industry and space exploration industry and arguably doing it well. That is more than remarkable. He may be a narcissist for all I know. He may even inflate facts or focus on possibilities more than realities (both of which are debatable if you read all sides of this), but he is certainly not lying. Virtually every reporting outlet in the world watches this. Major IBs are underwriting the IPO. But somehow, only one guy knows the truth and is pitching this angle. Perhaps more importantly for this comment board, it has NOTHING TO DO with what I *thought* VB focuses on reporting. I don't care about his divorce, nor his monthly expenses, nor was I aware how it affects the world of venture funded start ups. Hey VB, what is your position on this kind of reporting? Please let us know if this is what I/we should expect going forward. I want to know if Tiger Woods being an LP in some fund means that we are going to start reading about all his personal BS… because that is the precedent VB is setting with this kind of “reporting”.
http://twitter.com/yanquetino Mark Larsen

Owen: I hope you will try to secure a copy of Musk's claimed second physics degree from the U of Penn. I have been waiting years now to finally see that diploma.
http://www.technovia.co.uk Ian Betteridge

You mean should you expect proper investigative reporting instead of puff-pieces written to stroke in-crowd egos, or “stories” that are just rehashed press releases? I hope we can expect that. If you want the other kind of non-journalism, TechCrunch is that way ->
ph0ust

I see. So you are saying that VB is fulfilling its mission “…to provide news about innovation for forward-thinking executives.” with articles talking about some guys personal finances, divorce, etc. Not the deals the company signs or voracity of a company's marketing claims or its strategy or anything related to the company's market, but rather hit pieces on a guy at the company.Clearly, you and I have a different view of “journalism”.
http://www.technovia.co.uk Ian Betteridge

Perhaps you haven't actually read the story, so I'll bullet point the salient points for you:1. Musk was sued for defamation over comments made about Tesla's first CEO's performance on the job. That's nothing to do with his personal finances or divorce – it's about unprofessional behaviour from a founder of Tesla.2. Musk told people putting down deposits on cars from Tesla that he would personally guarantee their deposits – and then retracted this *after* people had put down the cash. Nothing to do with his personal finances or divorce, everything to do with unethical behaviour as company CEO.3. Musk has (being generous) exaggerated his role at Zip2 and PayPal. Again, nothing to do with his personal finances or divorce.4. Musk has repeatedly misrepresented the company's finances to existing and potential investors. Not, you should note, his own finances – those of the company. 5. Musk exaggerated (again, being kind) the “deal” with Toyota. There was, and is, no deal. None of these points are anything to do with Musk's divorce or personal finances – and all of them are ignored by people, like you, who for reasons unknown want to pretend that Musk has been an exemplary CEO and run the company well. All of them *are* concerned with (to quote you) “the deals the company signs or voracity of a company's marketing claims or its strategy or anything related to the company's market”. So please, come clean – why are you choosing to ignore these points? Or are you simply attacking the man – Owen – rather than the story he's written?
ph0ust

I've read all three of Owen's stories. You should note that each and every one of them is pointedly critical of Musk specifically:April 30, 2010 – Tesla Motors IPO Faces New Risk – CEO's Divorce TrialMay 27, 2010 – Tesla's Elon Musk: “I ran out of cash”July 9, 2010 – Telsa Motors CEO can't handle the truthIf you don't go any further, you might notice a trend there. If you do go further, you find the focus to be Musk and his personal life, along with a lot of claims about a variety of personal matters, legal allegations (from Eberhard) and some business dealings. The problem is fact checking. If you start looking at other reporting, SEC requirements for the quiet period or the actual statements in their actual context, it only supports what I initially said- Owen is cherry picking facts and twisting their context to craft a story about Musk. Maybe VB has Vanity Fair envy.Everything you list has been addressed openly, publicly and in response to Owen's writing and it doesn't hold water. Other media outlets have covered it and refuted claims made by Owen or clarified how they are out of context. If you are one of those begrudging folks who don't like flamboyant entrepreneurs because you couldn't do it…. fine. I get it. Just stop with the stupid crap about how this is reporting. No offense (sincerely), but I don't care if you think this is reporting. I simply don't want to come back if this is what *VB* thinks is reporting. I only come here for information about business. My wife reads Vanity Fair and I'm sure she'll hand me the article when Musk is in it… and I'll read it because that pub is good for that stuff and it's what I expect from them.
http://www.beanieville.blogspot.com beanieville

If the author would just criticize more into the Tesla technology instead of the petty stuff like divorce and personal spending, then the articles would be more believable. It appears this is more like tabloid reporting than anything else. This is like market bears always criticizing the bulls for being idiotic and drinking tons of koolaids, even though bulls have been right for decades and bears been wrong for just as long. You have the facts for the most part perhaps but you put on a highly negative slant to them, as evident in your article titles. That is tabloid reporting.Tell you what, if you give me the details of your life, I bet I can come up with some chalkboard scratching story about you. I can probably come up with the conclusion that you hate Tesla as a company because you have relatives or friends who are in the oil industry.
ANDNEXT

WHO CARES REALLY….IPOs , THE STOCK MARKET , CEOs, WALL STREET, BANKS ETC ETC- ALL THE ABOVE ARE ALL BAD HUMANS – WITH NO SENSE OF HUMANISTIC VALUES… Elon Musk, is a TINY LITTLE fish compare to all the terrible things WALL STREET and CEOs HAVE DONE FOR YEARS AND YEARS TO THE COUNTRY AND TO THE AMERICAN PEOPLE . YOU SHOULD BE THE LEAST SURPRISE OF Elon Musk AGENDA.YOU ARE NOT DISCOVERING THE NEW WORLD HERE OWEN– DONT YOU HAVE ANYTHING NEW TO WRITE ABOUT ??????? indulge me. THE WHEEL WAS INVENTED LONG LONG TIME AGO— SO STOP TRYING TO REINVENT THE WHEEL DUDEDONT TAKE IT PERSONAL- BUT YES MOVE ON Owen AND GET A BETTER STORYand i agree . WHY DONT YOU just criticize more into the Tesla technology instead of the petty stuff like divorce and personal spending- you should work for “Page 6″ of the daily-news instead of covering technology , you do a really poor job at it. try to work for a gossip news channel and not venturebeat. but I'am not surprise. one good lOOK at your Dvmb face and its a wrapped.
http://profiles.yahoo.com/u/EAQOP6EAAWOAFTUXZYRLWQL24Q Mekhong Kurt

John, if you don't like Tesla, fine. I don't have any connection to the company — in fact, I live in Asia, and have never seen its cars except in photos, on TV, on the Internet, etc. — but I would say that if the business model is to know the right people AND if that business model works, especially now that it's gone public, then everyone involved should be satisfied.
http://twitter.com/fijiaaron Aaron Evans

Yeah, I won't be reading venturebeat anymore if they choose to publish this kind of personal complaining. This is not news, this is someone whining that someone else said something that hurt his feelings. It's irresponsible, unseemly, and immature.
jwellsley

It's not necessarily classified as hard lies and misrepresentations that Owen is making, but how he is exploiting the grey areas that fall between fact and fiction. This abuse of grey area exposes Owens bias and prejudice. He is obviously quite an incapable person himself, so it strengthens his own weakness by the negating more accomplished people like Musk. As far as how he exploits the grey area, leveraging the personal matters of Musk, twisting the entrepreneurial's vision and views as lies. There is always a gap between entrepreneurs that see a future vision, and the rest of us that don't.To distort that as intentional lies, is a work of people like Owen. But the guy needs something to write about so this is what you get.