All founders need to tell compelling stories about the future. Tesla’s Musk takes things to a whole new level.

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“If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like hell.” ―Carl Sandburg

Elon Musk built Tesla, Inc., by turning Tesla into a great story. This story — one that’s partly about the allure of “disrupting” the auto industry, partly about building a modern-day muscle car, and partly about an eco-friendly mission to save the world — has convinced investors to propel his vision with billions of dollars in cash.

To some extent, every entrepreneur is a storyteller, their venture a vehicle to an imagined future, but Musk is in a class of his own. Whether he’s talking about building electric cars, tunneling under the streets of Los Angeles, or colonizing Mars, his stories matter more than others. They reshape markets.

In the end, however, entrepreneurship can’t be pure fiction. The fiction must serve as a prelude to the creation of a new company that adheres to a simple, fundamental rule: Revenues must be higher than costs, or costs must be financed. Facts matter.

Recent news articles have focused on Musk’s Twitter meltdown, in which he raged at the press for pointing out problems with some of his stories. But the real issue isn’t Musk’s thin skin. The example of Tesla — its rise and its potential fall — shows the power of narrative to affect the allocation of billions of dollars.

Humans are primed to be captivated by stories, and over the past decade, Musk has cycled through many versions of the Tesla story, each intended to raise more and more money from a host of different audiences, each intended to buy more time for his company to achieve the holy grail of an affordable, mass-produced electric car.

If Tesla proves to be a bubble company, not only will many investors and potential customers be left stranded, but we will have witnessed a remarkable case study in the limits of entrepreneurial yarn spinning. Today Musk thinks the media is his enemy, but he could never have built Tesla without it. We should always be wary of entrepreneurs selling utopia — even more so today, when an expanded, ever-present media fuels American capitalism.

Musk is mad that the media has stopped presenting his stories as nonfiction

When it comes to Tesla, the facts are not on Musk’s side. Musk’s latest of many problems is Tesla’s inability to ramp up production on the long-anticipated Model 3, which he had portrayed as a $35,000 electric car for the masses — an electric Model T of sorts. Indeed, based on the 400,000-plus deposits that consumers placed for Model 3s in 2016, two full years ago, demand for a more affordable, high-quality, long-range Tesla vehicle exists.

And make no mistake, the mass market is necessary to rationalize Tesla’s huge $46 billion valuation. Without a car for the average driver, Tesla is a niche player in the global auto industry, closer to Porsche than to Ford. Porsche is worth, conservatively, $10 billion and produced more than 200,000 vehicles last year. Building a Porsche-like company from scratch would be accomplishment enough for most, but Musk seems hell-bent on taking on industry giants like Toyota ($187 billion), GM ($54 billion) and Ford ($45 billion), regardless of the risks.

But so far, at least, the $35,000 Model 3 is essentially a tall tale. The lowest selling price of a Model 3 has been well above the target $35,000 that Tesla lists on its website. Tesla has been choosing to fill only orders that include significant options, including a long-range battery pack ($9,000 extra) and the premium interior package ($5,000). Autopilot? That’s another $5,000.

A $50,000 car may be fun to drive, but it is not a car for the masses. Musk had previously said that orders for the $35,000 base model would start to be fulfilled when production for the premium model reaches 5,000 cars per week, a target he has repeatedly stated is just around the next bend in the road.

Tesla’s inability to reach this target is the result of a combination of hubris leading to self-inflicted delays (an overambitious attempt to automate production, for example) and the fundamental challenges inherent in designing and mass producing a modern vehicle. Either way, the mass market remains elusive. One wag wrote, “There are fewer [$35,000 Model 3s] on the road today than there are Teslas floating through space.” Ouch. When you live on a narrative as Tesla has, you open yourself to painful counternarratives.

The Securities and Exchange Commission filed a complaint against Tesla in 2016 for failing to disclose to investors the crash of a vehicle driving on autopilot, and the government has investigated potential union-busting at the company, among other concerns. But in a possibly more consequential development, after years of accepting Musk’s pronouncements at face value, the press has begun to scrutinize Tesla. Bloomberg created a chart tellingly titled Tesla Production vs. Tesla Targets. (Spoiler: Tesla doesn’t hit its goals, which it then shifts.)

And to put it mildly, Musk has not responded well, lashing out wildly on Twitter. He is so angry over the skeptical coverage that he proposed to create a service that would vet the quality of news outlets. He proposed calling this service “Pravda,” which means “truth” in Russian. (Pravda was the house organ of the Soviet Communist Party, and Musk has tweeted that the irony is intentional.)*

If Musk could counter the latest round of negative stories with facts, he wouldn’t be going after the messengers in the media

Here’s the dynamic that explains Musk’s Twitter outburst: Tesla is clearly struggling to reach production levels that will justify its valuation. Musk has no facts with which to counter the media reports, and it is illegal for him to lie about these numbers. (Hype is one thing; lying to investors is another.) His Orwellian solution is to convince Tesla fans that what they are reading is not true. The stakes are high. Tesla’s $1 billion-per-quarter burn rate makes it very likely that the company will need to raise a couple billion dollars in the fourth quarter of this year.

Musk literally cannot afford for investors to believe a negative storyline. Only his optimistic, visionary narrative will convince potential investors that Tesla is a good bet, rather than a bubble preparing to pop.

Musk’s narrative is, by now, a saga: He’s been telling it (and selling it) for well over a decade. And over that period, he has consistently overpromised and underdelivered. Tesla’s first vehicle, produced from 2008 to 2012, was the Roadster, a two-seat techno-bauble with a base sticker price of $92,000 that was marketed as being able to go from 0 to 60 in four seconds. Foreshadowing the production problems that would plague the company in the future, early versions of the Roadster were slower than a $30,000 Honda S2000.

Tesla’s Model 3, which is definitely not — yet — a $35,000 car.

Recognizing the limited market reach of such a vehicle, by May 2007, Musk turned to touting Tesla’s imagined future. Tesla would leverage what it learned from the Roadster to produce mass-market electric vehicles. He predicted that Tesla’s next vehicle — code-named “White Star,” the project that became the Model S — would hit the market in 2009, with a $30,000 car to follow in 2010.

In September 2008, Musk predicted that the Model S would cost $60,000, and in November of that year he dialed that estimate down to just under $50,000 ($49,900 after tax credits): “Would you rather have this car [Model S] or a Ford Taurus?” he asked.

We would have chosen the Tesla! But Musk’s statements about prices — and therefore the Taurus comparison — were aspirational, to put it charitably; his goal was to secure a $465 million loan from the Department of Energy for electric vehicles. The feds were not interested in financing a luxury car, and a $50,000 car as a gateway to the mass market was a good story.

But by the time the Model S was available for sale, reality had departed significantly from the car Musk had described. The first Model S rolled off the production lines in 2012, four years behind schedule. Tesla did initially offer and produce approximately 200 limited-range $50,000 Model S sedans, but discontinued the model due to weak demand. Today, the lowest-priced, no-features-added Model S is $74,500 (and few Model S’s sell at that price). According to Tesla’s online savings calculator, the “cost after estimated savings,” which takes into account the federal tax credit and additional, lower per-mile operating costs of electric vehicles as compared to gasoline, the cost is $62,700.

That’s $35,000 more than the lowest-priced Taurus. And lest we forget, the $30,000 car “to follow in 2010” started to trickle out in August 2017, seven years late and at almost double the promised price.

Perhaps Musk really does think in dog years. Anyway, so much for the Taurus comparison. Yet memories are short, and Musk has moved on to new stories that kept the short sellers at bay.

Perhaps because Tesla would lose money if he actually sold a $35,000 Model 3 — the components may simply be too expensive — Musk has pushed production of a car at that price yet further into the future, now to three to six months after the company passes the milestone of producing 5,000 Model 3s per week. To sell the affordable car sooner, Musk says, would cause Tesla to “lose money and die.”

Departing even further from the goal of conquering the mass market, Tesla will instead offer a $78,000 dual-motor performance Model 3 (autopilot sold separately) when it hits the 5,000-car-per-week benchmark.

Musk is caught between a rock and a hard place. He is struggling to produce a mass-market car. If he cannot do it, it means Tesla should be valued closer to Porsche than to Ford, and the stock price should fall. But if the stock price falls, he won’t be able to raise money, Tesla will run out of cash, and the dream of a mass-market Tesla will be dead (or at least it will not be fulfilled by an independent company controlled by Musk). Tesla needs the profits produced by luxury models to forestall that outcome, but that’s not a long-term solution to his basic problem.

Given this set of facts, Musk’s only hope is “to pound the table and yell like hell” to try to convince investors to ignore reality — and focus on his storyline.

*UPDATE, 5/30: This passage originally suggested Musk was unaware of the irony of naming a fact-checking operation “Pravda.” In response to questions, he tweeted that the name is satirical.

CORRECTION: The article originally stated, incorrectly, that Tesla did not produce any Model S models at the $50,000 price point. It sold a small number before discontinuing that option.

Brent Goldfarb is an associate professor of strategy and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He drives an e-Golf and previously drove a Nissan Leaf. Find him on Twitter @brentdg2. David Kirsch is also an associate professor of strategy and entrepreneurship at the Smith School of Business. He drives a Prius plug-in hybrid. Find him on Twitter @darchivist. They are the authors of the forthcoming book Bubbles and Crashes: The Boom and Bust of Technological Innovation, which discusses Tesla. Neither author has any position in Tesla securities.

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