Why Tesla Should Make Us Nervous

Seen it before. Written about it before. The cult-like following among investors and buyers. Tesla is a cultivated brand — status symbol — environmentally conscientious folks who can feel pretentious and pure at the same time. The iconic CEO — Elon Musk. Written about, talked about, and quirky. Facebook posts for ending a marriage are always great fun. That classic swagger — billionaire by age 32. Iconic CEOs mean turnover in the management team. Ugly departure of the former CFO and the original founders. Oh, take a look at that executive compensation with the stock options. We have an irrational share price that cannot come from growth. Where’s the capacity for building and selling the cars the company would have to sell to justify the stock price? 500,000 cars by 2018? As of 2016, Tesla produced 100,000 cars. Stinky governance. Musk is CEO and chairman and no one has any choice about that. Tesla pays SpaceX to leases it aircraft. Tesla bought SolarCity, a company that has been unprofitable since 2012, and Musk’s cousin is the CEO. Not sure how the shareholders of Tesla benefit from the acquisition, but members of the Board do because of their investments. Kimbal Musk, Elon’s brother, may be the most independent director of all because of the investment interconnections among and between the others. The sheer number of subsidiaries is mindboggling. Numbers pressure. The cash burn rate. Investors just managed to pony up another billion in an offering. And this is a company that is unprofitable. The marketing budget has gone from $9 million in 2013 to $58 million in 2015. Divide that by 100,000 cars sold. Think what GM could do with that kind of budget per car.

You hope that Mr. Musk is just a genius and that this all works out for investors. However, Mike Jackson, CEO of AutoNation may be right — it is either the greatest Ponzi scheme ever or, the Barometer’s phrase, another Apple. The Seven Signs of Ethical collapse are evident here — and those seven signs were present in all the once-great ones: Enron, WorldCom, Adelphia, Madoff. You hope for the best, but there comes a point when you have seen the story one too many times.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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