Is Tesla The New Theranos
I originally started following Tesla as I felt it was a structurally unprofitable business nearing a cash crunch as hundreds of competing products were about to enter the market.
As I’ve studied Tesla more closely, I’ve come to realize that Elon Musk appears to be running a Ponzi Scheme disguised as an auto-manufacturer; where he has to keep unveiling new products, many of which will never come to market, in order to raise new capital (equity/debt/customer deposits) to keep the scheme alive. The question has always been; when will Tesla collapse?
As part of my research on Tesla, I decided to read Bad Blood by John Carreyrou, the journalist who first uncovered the Theranos fraud. It is the story of how Elizabeth Holmes created Theranos and then lurched between publicity events in order to raise additional capital and keep the fraud going, despite the fact that the technology did not work. The key lesson from Theranos for determining when a fraud will implode is that there are always idiots willing to put fresh money into a well marketed fraud – so you need a catalyst for when the funding dries up.
The other salient fact was that most senior employees actually knew that something wasn’t quite right, but feared losing their jobs or getting sued if they did anything about it. Therefore, employee turnover was off the charts but no one was willing to risk their career by saying anything publicly. However, when Theranos started risking customers’ lives, the secret got out pretty fast. This is because most people are inherently ethical – especially when they know that their employer is doing something immoral, like releasing flawed lab results to sick patients. Eventually, some employees felt compelled to become whistle-blowers and started to reach out to journalists and regulators. This started a cascading event.
First, one intrepid journalist took the career risk to write about the Theranos fraud. Then other whistle-blowers felt emboldened to step forward and contact this first journalist, as they also wanted their story told – especially as they had already reached out to government regulators who were too scared to investigate a politically powerful company.