Some of you may remember the crazy story a few years back of the zoo in central China that tried to pull a fast one by putting a large, hairy dog in the cage labeled "African lion." Visitors immediately took to the media waves in response. Did they try to rationalize the substitution by pointing to the ferociousness of the mastiff's bark, or the furriness of its "mane"? Of course not. Did anyone declare, "Well, the sign says it's a lion, so we should trust their assessment"? No. They were outraged and said so. To quote one visitor: "The zoo is absolutely trying to cheat us."

I was reminded of that episode when reading recent Wall Street Journal stories about Tesla Motors' habit of overpromising, which, at the risk of offending Elon Musk's true believers, has lately reminded me of Elizabeth Holmes' stated goals of changing the world with Theranos (which now remind lots of people of the claims on the side of a bottle of Stanley's Snake Oil Liniment).

Somehow, unfortunately, overpromising has become business as usual in the business world. The kind of hyperbole that used to be confined to the campaign trail and carnival midways is now the lingua franca of West Coast entrepreneurs and the investors who love them. How is that love expressed? With declarations of value that are over the moon. And lots of people buy into those values: Theranos, $9 billion (until it became $800K); Uber, $65 billion; and Tesla, $33 billion, on its way to $700 billion if you take Musk's words at face value.

It's a constant mystery to me how people can immediately recognize when they're being bamboozled in certain situations yet doggedly refuse to acknowledge the possibility in others where the stakes are much higher. How could Uber possibly be worth $65 billion? That's a rhetorical question--it isn't. Some of those who publicly endorse the mega-billion figures are lying, but plenty of others are not. It's that damn "visions of sugarplums" syndrome, the same thing that keeps people believing in things too good to be true and leads to a run on lottery tickets when the jackpot soars.

But what about the chronically overpromising Mr. Musk, who wants to change the world, as the media so often reminds us? Some members of the press would have us believe Musk's propensity for citing big numbers is part and parcel of his being a visionary; we should just accept it if we're going to be the change we want to see. But this week's two Wall Street Journal articles took a more critical approach. One focused on how the company has missed 10 stated goals and not met more than 20 projections in the last five years--while Tesla's stock over the same time has appreciated 760 percent. A question raised is whether Musk is aware the projections are out of line. His take on that? If you don't believe Tesla will reach its goals, you shouldn't buy the stock. Gosh, he makes it sound easy.

The fact is, people seem to need something to believe in that's bigger than themselves, and Musk's projected $700 billion is very, very big, as businesses go. However, it's not so big in terms of the federal government, and that's where another Wall Street Journal writer, Holman Jenkins, sees similarities between Tesla's narrative and that of John DeLorean's 1980s-era gull-winged speedster. Like DeLorean Motor Co., Tesla has relied on government support, and Musk's projections help feed that support in a way that investors might not fully understand. But political patronage can be fickle. All it took to end DeLorean's dream, as Jenkins points out, was a change in government and a prime minister known as the Iron Lady.

For the time being, plenty of investors--and motorists--continue to believe in Musk's $700 billion, and the whole saga makes great copy for business writers and readers. I can't help but wonder, though, just how many more missed projections it will take before Tesla shareholders start to feel a little like those indignant zoo visitors who knew a dog when they saw one.

Published on: Aug 19, 2016