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My Thoughts on the Systemic Scam Underlying Tesla Motors: 2

In my previous post in this series, I made the point that there many similarities between the overall career trajectories of Elizabeth Holmes and Elon Musk than most want to acknowledge. Based on the comments section of that post, it appears that some of you think that comparing a now-disgraced con artist with your favorite secular prophet du jour is unfair. Some of you might also think that Theranos, unlike SpaceX or Tesla Motors, was a complete con-job based on an unsound idea and totally fabricated results. The reality, however, is far more complex and nuanced.

But before we go there, let us talk about another facet of the almost uniquely american scam known as a technology based startup based in, or around, Silly Valley. To be more specific, let us focus on the type of people who start or are the public face of such corporations. I recently came across an interesting article which made an argument about entrepreneurship in USA that I also made in the past. To summarize, the article says that all entrepreneurs who achieve any lasting level of success in USA are scammers and con-artists who just got really lucky.

In other words, all those Silly Valley entrepreneurs constantly promoting their “disruptive” and “innovative” product or service “which will change the world” are just scam artists who have found the right elevator pitch, facial mannerisms and organisational image to sell to gullible fanboys and cynical banksters who will lend them other people’s money. Being a successful entrepreneur in USA is now almost exclusively about having the right image and sales pitch in addition to pushing emotional buttons in rubes rather than delivering even a fraction of what was promised.

To be fair, none of this is really new and american rubes have been enthusiastically buying snake oil of all types since the nation was founded. What is, however, different now is that real world technological progress (as in improvement) has stalled for at least a decade (and more) in many fields. Don’t believe me? Look at trends in life-expectancy (even for the super-rich), increasingly crappy quality of your smartphone and laptop, the almost complete lack of any major medical advance (to treat common diseases) for well over a decade.. I could keep go on.

This combination of very obvious (if largely unspoken) technological stagnation combined with sequelae of 2008 financial crisis has drained public faith from most american institutions. It is also partially the reason why Trump was elected in 2016. Another consequence of this (richly deserved) loss of faith in traditional institutions is that any slick con-man or con-woman with some TED-Talker skills can successfully start a new corporate cult. Even recycled scam sellers, such as Alex Jones and Mike Cernovich, can make tons of money and gather an army of “followers”. And those two are not even the worst offenders of their sub-genre.

So how is the scam perpetrated by somebody like Elizabeth Holmes, Elon Musk or any other Silly Valley CEO different from the dietary supplements and self-help books hawked by Alex Jones and Mike Cernovich. Well.. for starters, Silly Valley scams are based around a core of truth or plausibility. For example, lithium-ion battery based electric cars with decent performance have been feasible since late 1990s, United Launch Alliance (ULA) was abusing its rocket launch monopoly in USA by charging outrageous rates and advancements in medical diagnostic technology have reduced the specimen size necessary conducting each test.

It is therefore reasonable to start corporations to explore development and commercialization of better electric cars, cheaper rocket launchers and diagnostic tests which are faster and can use a smaller specimen size (or volume). So what makes Tesla Motors, SpaceX and Theranos scams rather than somewhat respectable businesses? Well.. as I have said in previous posts, it comes down to the dreams they are selling to their fanboys and investors. For example, SpaceX would be a perfectly normal business if it promoted itself as a launch company with cost-competitive rocket launchers. But that is not what its public image and market valuation are based on.

Instead the market valuation of SpaceX is based on believing their hilarious claims about lunar tourism, colonization of mars and monopolizing the global space launch market. To put it another way, they are selling a series of highly implausible dreams. Similarly, as I mentioned in previous post of this series that, Tesla Motors public image in USA and stock valuation are based on the belief that it will displace Toyota, GM, Hyundai etc as the premier and other dominant automobile manufacturer in the world. It also presupposes that electric cars will somehow magically replace gasoline/diesel cars throughout the world, within the next 15 years. If you don’t believe me, have a look at market valuation of automobile manufacturers (including Tesla Motors) versus the number of vehicles they sell per year.

But what does any of this have to do with the saga of Elizabeth Holmes and Theranos. As it turn out.. a lot. The idea underlying Theranos, namely miniaturizing medical diagnostic tests such that they require very small amounts of blood or other bodily fluids, is fairly reasonable. In fact, some technologies that it was trying to incorporate into its own system has been previously shown to work well- perhaps not well enough or with very small volumes- but work well enough to merit further development. The problem with Elizabeth Holmes, her ‎Svengali (Ramesh Balwani), and the upper management of that company was that they over-promised to the point where they could not deliver anything close to what they promised.

It did not help that they apparently had an insufficient grasp of the technological aspects of whatever they were trying to promote. To make matters worse, they tried to scam their way out of this self-inflicted disaster by doing a variety of illegal things- from using diagnostic systems from other manufacturers to make it appear that their own system worked, abusing and threatening their employees and a whole lot more. But more importantly, through all of this Elizabeth Holmes continued peddling the scam under the guise of “female empowerment”, dressing like the next Steve Jobs, speaking in a fake voice and much more.

Curiously (or not), she had no trouble finding tons of rich, famous and allegedly smart people who were willing to invest millions and billions in her scam. Theranos started to implode only after it became too obvious that she pulling an enormous scam. Even then, many of her rich financial backers kept expressing confidence in her abilities. So what was the reason behind the now divergent fates of Elizabeth Holmes and Elon Musk. Well.. in my opinion, Elon Musk got lucky because he built his companies around ideas which could survive a quick back-of envelope calculation.

Electric cars with decent performance and relatively inexpensive RP-1/LOX rocket launchers were either already feasible or mature technology for at least a few years before he started Tesla Motors and SpaceX. Elizabeth Holmes, on the other hand, tried to pull of a scam in an area which lacked a similar base of proven technology. She chose poorly and was unlucky. But make no mistake- their main business model was, and still is, selling people and investors on their dreams of “technological disruption, “unlimited profits” and “market monopolization”. And that is why Elizabeth Holmes is an unlucky female version of Elon Musk.

What do you think? Comments?

  1. P Ray
    June 30, 2018 at 6:17 pm

    For me, I knew something was up the moment all these “masters of technology” turned up fully polished, not wearing glasses, short on details and with a “can-do” attitude.
    Simply because:
    1. you can’t predict the future completely
    2. programming languages evolve and APIs get deprecated (I’ve re-compiled things where the books were published in 2004) … leading to (3)
    3. unless you’ve written a book or have notebooks filled with what you’ve learnt about what went wrong – you don’t know what’s going on
    4. if the person didn’t graduate (now) in their field, they’re going to have to hire other people to “make their vision a reality” and don’t have a prototype
    5. until the company turns a profit, it has to outlast competitors, and if the tap is turned off, it’s a write-off
    6. you can’t build a big business without having some politicians on your payroll. Maybe even their kids.

    • hoipolloi
      July 7, 2018 at 11:36 pm

      “you can’t build a big business without having some politicians on your payroll. Maybe even their kids.”

      P. Ray and AD: Do you know that Elizabeth Holmes has a family connection to the defunct Enron?

      • P Ray
        July 8, 2018 at 2:46 am

        I heard the name Holmes and thought she was related to John Holmes, because she royally screwed investors 🙂

        Thanks for the heads-up!

  2. June 30, 2018 at 8:46 pm

    Hey man, you should write something about the richest guy in the world right now…

    Since I am using his app day in and day out, I can tell you a few observations…

    The geo-tapping is sometimes off, if you are in a rural area where they build houses on lots behind houses, the app does little to help you find it. I’ve been told that Fed Ex and UPS have better GPS for their drivers. Of course Mr. Rich man is using his drivers employed through third party messenger services and contractors who use their own vehicle to develop what is likely proprietary data. He already owns tons of storage space as far as servers. He already has tons of information on what consumers buy and now he is in the grocery chain with Whole Foods. He is building back end infrastructure so he won’t need “logistics” from UPS, the postal service or Fed Ex. And when drones/driverless vehicles come, he’ll be ready. He is also jumping into the healthscam, uh, I mean healthcare game…

    • NF
      June 30, 2018 at 9:57 pm

      He’s not really the richest man in the world by a long shot. Those people tend not to ever really be listed. But he’s also a good example of someone who’s company is massively over valued, who became a billionaire via government contracts, who is a total fucking idiot that lucked out, and someone who clearly has no vision for really anything and just uses brute force move into different economic realms.

    • P Ray
      July 1, 2018 at 6:45 am

      I’m sure Jeff Bezos (that’s the guy you’re talking about, amirite?) will have some politicians or former politicians on his staff to ensure “free market economics” work for the benefit of his company.

  3. June 30, 2018 at 8:50 pm

    Another thing, have you observed that guy like Jocko Willnick and Joe Rogan have their podcasts for free bit then sell supplements? Isn’t this similar to those manuresphere dudes who were pedaling Kratom?

    • NF
      June 30, 2018 at 9:54 pm

      No one is forcing you to listen to either podcast. If you listen to Rogan then I’m truly sorry. As a side note the supplements he pedals are pure shit. Jocko’s supplements are pure shit too. They never tell you it’s the steroids they’re taking that make them big and strong.

  4. NF
    June 30, 2018 at 10:00 pm

    You could have also talked about the $800 juicer that everyone discovered was not as good as using your hands. I feel like that sums silly valley up the best (although that one ended in failure while many more of these utterly shorty companies keep on living and profiting for no good god damned reason.)

  5. Wilson
    July 1, 2018 at 3:58 am

    Think the excess is mostly due to governments printing trillions worth of counterfeit currency to “stimulate the economy,” that is the real scam, the hustlers are just trying to get a piece of the action, and the suckers have money to throw around that may or may not be worthless

    • 99 Percent Libertarians Are Blue Collar Chumps
      July 1, 2018 at 5:37 am

      Stfu dirt poor/petty bourgeois conservative,take your shitty *back to the gold standard* arguments somewhere else.

    • NF
      July 1, 2018 at 6:28 am

      It’s not the government printing the money in a fiat currency system. If they did then there wouldn’t be an issue. How are you able to retain some concept of fiat currency without grasping the major aspect of it?

  6. (((They))) Live
    July 1, 2018 at 5:22 am

    Still getting SpaceX wrong IMO, whats hilarious about their claims about lunar tourism, they already had 2 people willing to pay for a trip around the Moon

    What does it cost SpaceX for a Falcon 9 launch ?

    What will it cost SpaceX for a BFR launch ?

    Two people willing to pay millions for a lunar trip just once is not the same as tourism.

    Based on how much they are charging to all customers (including US government)- at least 40 million USD.

    The real question should be what payloads would be launched by the still-on-paper BFR.

    • NF
      July 1, 2018 at 6:27 am

      I’m sure you’d find lots of people willing to pay for lots of things but whether or not the company can deliver on the promises (you know, in order to receive payment) is a different story.

      As for the cost of a launch-as has been discussed here before-that is not the major factor being considered when discussing price reduction.

    • (((They))) Live
      July 1, 2018 at 4:01 pm

      We don’t know the cost of the Lunar trip, I assume the price was well over $100 million each, it would require an expendable Falcon Heavy launch, $40 million each doesn’t cover that and a Dragon capsule

      Main BFR payloads will be the SpaceX comms system, NASA, DOD, commercial comms sats, and space tourism, if 2 people are willing to pay over 100 million for a trip around the Moon then I bet an even larger number of people will be willing to pay the cost of a BFR trip to the Lunar surface, BFR launch costs will be far lower than Falcon Heavy expendable flights so Lunar trips work out very cheap depending on the number of passengers per flight

      Think of it like this, how many people would be willing to spend $10-20 million for a trip to the Lunar surface, its a lot more than one or two IMO

      Also work is under way on the BFR, the engine is almost finished

      its some scam Musk is involved in, first they develop one of the industries best gas generator engines, then they start all over again a try to develop one of the best staged combustion engines, its an awful lot of work for a con man

      When does Musk collect the pay off for all this work, and who exactly is the victim of the scam ?

  7. (((They))) Live
    July 1, 2018 at 3:32 pm

    Of course launch costs matter, thats the main factor really. A while back someone from SpaceX claimed that the long term cost of a Falcon 9 launch would be 9 million, nobody believed him, maybe they do now

    If SpaceX is a scam then Musk would have had the IPO by now, the fact that he has resisted the IPO billions should tell you something, Blue Origin are the only near term competitor to SpaceX and they don’t reach orbit until 2020, assuming everything goes well for them

    • NF
      July 1, 2018 at 7:18 pm

      That’s real sound logic right there.

      • (((They))) Live
        July 2, 2018 at 2:44 pm

        Is that all you have NF, thats weak man, low energy, SAD

        Come on, prove me wrong, tell us who SpaceX are scamming, they have the lowest launch costs in the world, and if they recover the second stage costs will only go lower

        Who is getting ripped off, how does it work ?

      • NF
        July 3, 2018 at 9:58 pm

        It really depends on how you define “ripped off”.
        Arguing with you is fucking worthless. You’re a true believer.

    • balu
      July 2, 2018 at 10:42 pm

      “If SpaceX is a scam then Musk would have had the IPO by now”
      Not necessarily. Please note, Spacex has never published a proper accounting, what we know is what Musk and his crowd say. I guess for an IPO you need to produce something resembling that. Actually, people familiar with the space business have already said a few times that Spacex is likely in deep trouble and their business model is more like a sponzi scheme, ‘cos they are collecting prepayments for a lot of future launches, and it is very likely that they far more expensive than their overhyped low prices show (remember, there’s no proper cost analysis apart from what they say). In other words, every actual launch is a net loss to them, and they are desperately trying to come up with something to actually cut costs. Overworking employees and paying them peanuts is one sure sign. Again, it is extremely unlikely that they could be cheaper (not to mention much cheaper) than others in terms of real costs. Re-usability is likely not that a big cost saver, to actually reuse a first stage you have to thoroughly examine and refurbish it, which is time consuming, costly and you need a proper facility for that. And there’s another cost of re-usability the Musk believers don’t know: every kg of extra fuel needed for landing stages for reuse means 4-5 kg of loss in payload mass. Depending on the landing place, it means 1-5 metric tons of loss.

      • P Ray
        July 3, 2018 at 12:52 am

        So, to scam governments there is no accounting and follow up,
        but to scam civilians you need proper accounting …

        No wonder so many people “want to work in government”. To a charming Chad Thundercock the ability to be able to direct billions to their own wallets (by impressing status-hungry government rubes) is too tempting to resist.

      • (((They))) Live
        July 3, 2018 at 1:46 am

        Nice try balu, I like it, its a lot better than NF anyway

        So SpaceX were losing money on every launch and then reusing the first stage makes it even worse

        They have had over 60 launches now, they will be launching once a week when their own pad is ready, I guess they plan to make up the loss with volume, where are they getting all this money to lose, thats a strange type of charity

        We don’t know everything about re-usability but we do know that a first stage costs 50 million to produce, I find it hard to believe that processing the first stage after landing costs more than 50 million

        It was a former ULA employee who I first heard making this argument, that was before they landed a first stage, if it was true they would be long gone by now

        Also the need for fuel for the landing cutting into payload doesn’t really matter IMO, it was made up by increases in Merlin performance upgrades

        AFAIK to win their first CRS contract from NASA they had to verify their costs, maybe NASA are in on the scam

      • balu
        July 3, 2018 at 4:25 am

        “then reusing the first stage makes it even worse”
        Huh, it must’ve been very hard to misunderstand what I said. No. Reusing is not a silver bullet, that was the point. I didn’t say that would be _worse_.

        “they will be launching once a week when their own pad is ready”
        If you talk about Brownsville, that won’t be soon. Anyway, this is not the pad that’s missing but the rockets. They could launch a rocket every week even now if they wanted to. Moreover, inflated figures (“once a week”), outlandish claims and unrealistic deadlines are very characteristic of Spacex and specifically of Musk. (Falcon Heavy was supposed to fly in 2012, and it was delayed and delayed and delayed… They referred to the Falcon 9 as reusable much-much before they actually could land a first stage. etc.)

        “hard to believe that processing the first stage after landing costs more than 50 million”
        Sorry, you somehow misunderstood what I said, again. I didn’t say that would be more expensive. I claimed that wouldn’t be much _cheaper_. The unreasonable assumption about the cheapness of reusability was one reason the Space Shuttle wasn’t viable.

        “It was a former ULA employee who I first heard making this argument”
        Could you please ask him/her now?

        “Also the need for fuel for the landing cutting into payload doesn’t really matter IMO, it was made up by increases in Merlin performance upgrades”
        No, pls check the various configurations for F9 and F heavy. The fully reusable config (with landing at Cape C.) is only capable almost the fourth of the expendable (to GTO). Regarding Merlin, actually there was no performance upgrade since 2012.

  8. (((They))) Live
    July 3, 2018 at 5:15 am

    SpaceX will have plenty of rockets since they don’t dump them in the ocean after every launch, my guess is they will have 3 or 4 first stages at each pad and just mass produce the second stage, it may take a year or more but yes they will be launching at least once a week, most of the payload will be for their own comms system

    You can’t use the Space Shuttle as a reason why Falcon 9 re-use might be expensive, very very different launch vehicles, this may be your main mistake

    The ULA employee later lost his job, who knows where he is now

    They have been performance upgrades to the Merlin since 2012, or they have been running the engine harder, if you don’t consider that an upgrade fair enough

    Anyway the Merlin is old news, its all about Raptor now

    I have a question, if SpaceX were losing money on every launch, why did they increase the launch rate, then if they were losing even more money reusing first stages, why again did they continue to increase their launch rate, and while they were doing this they were investing in the Raptor and buying hardware to build the BFR, how is that all possible if they lose money on every launch, 7K people now work for SpaceX, how do they pay that wage bill if they lose money on every launch, its just not possible long term, the end must be nigh 😦

    Therefore they must be making money on every launch, Steve Jurvetson said that SpaceX results read like financial porn, and that was before they perfected reuse

    • balu
      July 3, 2018 at 6:22 am

      “SpaceX will have plenty of rockets”
      Okay then, we will see.

      “most of the payload will be for their own comms system”
      This is at the moment just another outlandish claim.

      “You can’t use the Space Shuttle as a reason”
      Why not? Most of the costs were associated with the refurbishment of engines. A F9 core has 9 complex engines. Anyway, the cost of reuse turned out to be an order of magnitude _greater_ than projected before. SS is the only system so far that routinely reused major components. In the case of SpaceX, this routine has not arrived yet. Eg. remember, they lost the central core during the F Heavy test.

      “They have been performance upgrades to the Merlin since 2012, or they have been running the engine harder,”
      Neither. The “Full Thrust” etc. upgrades were about the vehicle itself (eg. lighter tanks, more fuel load, whatever). They announced a plan to upgrade Merlin etc., they even announced some results, but this has not materialized yet in concrete usage.

      “Anyway the Merlin is old news, its all about Raptor now”
      Well, no one has seen a Raptor yet 🙂 We have technological demonstrators, scale models, experiments, but not Raptor. Apparently, the so called “staged cycle” is a harder piece to bite. And anyway, Raptor needs a new vehicle, it is methane based. The difference is perhaps not that great but still existing. In other words, Raptor is far-far from actual usage. And please note that Raptor is under development for years already.

      ” if they were losing even more money reusing first stages”
      Again, I said they don’t spare _that_ much. I didn’t say they lose _more_.

      “I have a question, if SpaceX were losing money on every launch, why did they increase the launch rate”
      First of all, they get money for future launches, and for those, they have to have actual launches. Second, it may be possible that they still hope for breaking even if they scale up. I’m not claiming that they do the scam consciously, they (or some of them) may believe in their own BS.

      “buying hardware to build the BFR,”
      This BFR looks to be another piece of BS, very characteristic of Musk. The realistic thing would be relying on Falcon (and variants), getting the maximum of it, gradually improving (including the reuse pipeline). This is what they actually do. If Raptor ever materializes, they may try to make a methane based Falcon, reusing as much as possible.

      “its just not possible long term, the end must be nigh”
      This is it, that’s what I’m talking about. Tesla is apparently about to fold.

  9. (((They))) Live
    July 3, 2018 at 7:04 am

    Na the BFR is real, work has started on it, we might see the BSF fly in 2019, or 2020 if we add the usual Musk delay

    Raptor is almost finished

    • balu
      July 3, 2018 at 10:25 am

      ” BFR is real, work has started on it, we might see the BSF fly in 2019, or 2020 if we add the usual Musk delay”
      The usual Musk delay is 8-10 years (see Raptor, F Heavy).

      “Raptor is almost finished”
      We have yet to see even a single engine, not to mention a test on the test pad. Not even the specifications are fixed. It is very likely that they are heavily testing and developing the various components. The engine actually tested in 2016 was just a subscale demonstrator, and very likely it was unfit for practical usage. So no, the Raptor is not almost finished.

      • (((They))) Live
        July 3, 2018 at 4:31 pm

        I think you miss understand the Falcon Heavy delay, the increase in Falcon 9 performance made the need for FH less immediate, once the Raptor is finished we will see the BSF soon after

        Way back in 2002 the smart bet was to assume SpaceX would fail, but 2018 SpaceX is a very different animal, they have far more money and experience

        So yes the Raptor is almost finished 🙂

  10. (((They))) Live
    July 3, 2018 at 8:03 am

    BTW Tesla folding will have no effect on SpaceX

  11. mikeCA
    July 3, 2018 at 1:43 pm

    Tesla is not the first company to try to market all electric cars. The one thing Elon Musk got right was to start by building a luxury electric car rather than start with the low end electric car for the masses. Most other companies have tried to do small, low end electric cars. Starting at the high end gave Tesla an image as a prestige brand while keeping production requirement low because the cars were expensive. Now Tesla is trying to scale up production for Tesla 3 and is having lots of problems doing that.

    Tesla may or may not be successful, but Elon Musk is a marketing visionary. Most successful silicon valley companies have marketing visionaries in the early days. Visionaries usually over hype their products, but the company succeeds or fails based on whether it can deliver products people want to buy at a price they are willing to pay.

    • NF
      July 3, 2018 at 9:42 pm

      So other than Apple and Steve jobs who in many ways really did offer some good insights, can you give one other single expample of a valley visionary that actually came through and delivered anything?

      • mikeCA
        July 4, 2018 at 5:59 pm

        Gordon Moore at Intel.

        Larry Ellison at Oracle.

        Mark Zuckerberg at FaceBook.

        Larry Page at Google.

        Most of these people do not have the flashy profile that Steve Jobs had, but they are/were visionaries that drove their companies to success.

      • P Ray
        July 4, 2018 at 10:29 pm

        The other perk for Larry Ellison at Oracle – he enjoys schtupping new female workers.
        A very close real-world analogue of Tony Stark (another inspiration was Elon Musk).
        Both have appeared in the Iron Man movies.

      • NF
        July 6, 2018 at 10:48 pm

        none of the people you mentioned are visionary or offered anything new to the table. They were all lucky to be where they were, not to mention that they all could easily be Cia fronts. This games of back and forth are really fun when you give no data and just expect everything to be a given from the start.

      • P Ray
        July 7, 2018 at 11:54 am

        Larry Page at Google
        Page and Brin wrote the pseudo-code for the original Google, some other people programmed it (it was even part of a book, one of the principle programmers said “I wouldn’t trust Brin or Page to do software development – they are mathematicians not computer scientists).

        Under the guidance of head-groper Amit Singhal, 1000 software developers are now refining the Google algorithm, which, according to the limits of human development, is easily too fucking huge for 1 or 2 people to understand

        I would also pass on this healthy skepticism towards the Zuck, no way he singularly understands the Facebook algorithms anymore.

      • P Ray
        July 7, 2018 at 11:58 am

        typo: principle programmer should read principal programmer

      • MikeCA
        July 8, 2018 at 3:19 pm

        “none of the people you mentioned are visionary or offered anything new to the table. They were all lucky to be where they were, not to mention that they all could easily be Cia fronts.”

        This comment shows where you’re at. Your boys did really well at football, too bad about those goal kicks.

        You guys have no idea what you are talking about.

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