Tesla Motors makes appealing cars. And its CEO Elon Musk fits the archetype of the fearless hero -- willing to take huge risks that would terrify mere mortals.
That's why many investors have fallen in love with Tesla stock.
And he also founded a company that merged into PayPal, is an investor in SolarCity, and runs SpaceX.
As a skilled sales person, Musk excels at enlisting support from people -- including investors and customers -- through an emotional connection.
To be sure, he makes a better case for owning a Tesla vehicle than for owning Tesla stock.
While the Tesla is expensive, it's also attractive, and seems to work fine as long as the driver can keep the battery charged.
How could you not look at Musk as one of today's most inspiring entrepreneurs?
I am very concerned about the way he treats investors. That concern is summarized in the stark contrast between his skill at offering a compelling vision of the future with his repeated tendency to overpromise and under-deliver when it comes to short-term goals.
This comes to mind in considering Tesla's decision to acquire SolarCity -- the solar energy service run by his cousins -- for $2.6 billion.
This merger highlights the four reasons why I do not see Musk as an entrepreneurial role model.
1. Musk Is Gripped By Delusions of Grandeur
It seems to me that entrepreneurs need immense self-confidence -- but that self-confidence must be balanced with enough self-knowledge and intellectual humility to know when they need help or should limit their bets.
I have never met Musk but he seems to have a very high opinion of himself -- someone for whom the rules that govern most other people do not apply.
That approach seems to have worked for him insofar as he is a multi-billionaire.
It seems to me that Musk is putting at risk his Tesla-built fortune -- his $8.3 billion net worth fell by $779 million -by merging with SolarCity. According to Bloomberg, 50% of Musk's net worth is tied up in Tesla, 46% is in SpaceX -- one of its Falcon 9 rockets burned up on a launch pad on September 1 -- and a mere 4% is linked to SolarCity.
In an August 31 SEC filing, Musk disclosed that he had put up $489 million more of his Tesla and SolarCity stock as collateral to secure personal loans.
This seems to me to be a sign of his delusions of grandeur.
2. Musk's Ambition Defies Fundamental Mathematics
Before it goes public, investors can placeholderforgive a company for losing money -- if it's getting big fast. Musk has demonstrated his ability to do that for several startups.
But there is a point at which applying that same mentality to a public company can seriously endanger investors.
In fact, Musk seems to be taking on so much risk that it makes me wonder whether it would be worth considering the odds that Tesla's stock will fall because he seems to have increased the chance that it will face a cash call from lenders that it can't meet.
In its SEC filing, Tesla noted that it had borrowed $6.3 billion in the first half of 2016 and that Tesla and SolarCity had burned through over $1 billion in cash during that time.
This might be OK if there was a clear path open to the companies that would make them cash flow positive and reduce their debt. But the SEC filing suggested that Tesla might need to borrow more.
And the company already announced that it needed to make a $526 million investment to build its so-called Giga-battery factory and it has been estimated that Tesla needs $10 billion to realize its new so-called "Part Deux" vision for the future.
There comes a point where entrepreneurs needs to look inside and realize that their ambitions may not make financial sense and should be scaled back. Musk has not done so -- and it is too early to know whether he is right or dangerously wrong in that choice.
3. Tesla Disrespects Minority Shareholders
One of the things that makes America a good place for startups is that it has better protection for minority shareholders than any other country in the world.
That doesn't mean that scams don't happen here. It's just that they can happen more frequently elsewhere.
I believe that great entrepreneurs should respect investors rather than trying to pull the wool over their eyes -- while dancing back and forth over the edge of the law.
Unfortunately for those who would look at Musk as a startup role model, Tesla's board does not seem to have public investors' best interests at heart.
After all, in May the board approved a $1.4 billion secondary offering of Tesla shares.
But in addition to not disclosing that a Tesla customer had died in a fatal accident while on Autopilot, the board approved documentation that excluded mention of the merger discussions on which it was briefed on February 29.
To be sure, a small number of independent Tesla directors evaluated the SolarCity merger. But the quality of that evaluation strikes me as hard to discern from reading the SEC filing.
A quick look at the financial forecasts for the combined companies reveals patently unrealistic assumptions about how the two companies will go from losing vast buckets of cash to becoming cash flow positive in just a few years.
These projections show SolarCity burning through $189 million in cash in 2017 and then in the next years generating huge amounts of cash -- from $271 million in 2018 to $799 million in 2020.
Give me a break! In 2015, SolarCity burned through $2.6 billion in free cash flow and in the last 12 months that figure rose to $2.8 billion.
When Tesla expects more borrowing ahead, what could possibly justify excluding debt costs from the board's consideration of SolarCity's future cash flows?
This board may be complying with its legal obligations -- I can't judge that given my lack of legal knowledge -- but the quality of its published analysis of the SolarCity merger is so poor that I question whether Musk is concerned more about realizing his vision than creating shareholder value.
4. Cavalier attitude towards cost control
Many private companies these days have been taking a careful look at their spending to preserve the capital they've raised.
I consider that to be a sign of wisdom by their CEOs.
But on September 2, Bloomberg reported that Musk sent a memo to his employees asking them to make Tesla profitable in the current quarter to "throw a pie in the face" of Wall Street naysayers who doubt the company's ability to make money.
It will take more than a memo to turn Tesla profitable -- but the shallowness of Musk's thinking reveals the gigantic gap between his lofty vision and his ability to execute.
If you're looking for an entrepreneurial role model Jeff Bezos -- who combines vision and execution -- would be far better. He founded Amazon in 1994, took it public, and has recently driven its stock to an all-time high.