Elon Musk is everything that’s wrong with startup investments

AddThis

Photo Credit: Courtesy of Steve Jurvetson | Daily Texan Staff

Business mogul Elon Musk is a master at manipulating his own press coverage. He believes we’re all living in a simulation, states that AI is an existential threat, and is striving to turn humans into cyborgs. His radical comments walk the line between visionary and delusional. However, his statements also serve as distractions from his unsustainable business ventures and are indicative of a culture in which start-ups are rewarded for hype alone.

Musk has controlling stakes in SpaceX, Tesla, and SolarCity. Yet each business is fundamentally flawed. SpaceX is arguably the most reliable of Musk’s endeavors, yet is still faced with high-profile and calamitous failures. Tesla has been plagued with supply chain problems for years that have kept its growth suppressed – but it has been kept afloat through crucial government subsidies. SolarCity is incapable of generating cash. The enterprises Musk has launched face severe pitfalls, and do not merit the absurd values their stocks are trading at. Elon Musk‘s cult persona dangerously fuels support for his currently unsustainable business ventures.

The disconnect between substance and perception of Musk’s empire is not unique to Tesla. Snapchat managed to gain a multi-billion dollar valuation and IPO while having only posted losses. Finally, key investors Morgan Stanley downgraded their stake in the company. Hot startups like Uber, Twitter, and Snapchat manage to gain immense support and investment because of their flashiness, not from their abilities to generate a profit.

Startup friendly cities like Austin must be wary. Take for example redenim, a startup that allows users to rent designer jeans for $29 a month. Only jeans. After understanding how niche the market is for a product like that is, and after understanding the vicious competition available from companies already in the space, it’s strange to see that builtinaustin.com – the hub for Austin startups – featured redenim in their 50 Austin Startups to Watch in 2017 list. The list also includes a water bottle you have to charge and a more expensive version of Life-Alert.  

Betting on bad business will backfire. Buying into hype just to be left with a bankrupt company will tarnish the image of startup friendly cities – a story Silicon Valley is now experiencing. As a critical part of both Austin’s economy, and culture, investors must accordingly be more wary with their investments – simply throwing cash at a business will not make it succeed.

Tesla demonstrates that not all that glitters is gold. In the age of viral media, soundbites from celebrity CEO’s have the ability to push investments and public sentiment more than demonstrable sales. While Elon Musk’s one-man hype machine is a powerful tool, it would be wise if investors treated him with more cynicism.

Hasan is a Finance and IRG sophomore from Plano. Follow him on Twitter @UzzieHasan.