Government support for Elon Musk’s three companies – Tesla Motors, SolarCity and SpaceX – has reached $4.9 billion, according to a recent report by the Los Angeles Times.
Reactions to the story have been strong, both from Musk and from readers. The Los Angeles Times has received more than 530 comments, some from supporters of Tesla and SpaceX, and some that oppose the government’s involvement.
The news story comes on the heels of a recent report by the International Monetary Fund, which calculated that oil and gas subsidies worldwide total $5.3 trillion each year. That’s the equivalent of $10 million spent every minute.
$4.9 Billion In Government Support For Three Companies
Slate magazine recently remarked that Musk’s main goal in life was, “and I’m not exaggerating here – to develop the technologies he deemed most crucial to the future of humanity.”
But the Times suggested that a very different set of ambitions may be leading Musk’s direction. Last Saturday, the newspaper made waves with its report that three companies Musk is involved in have garnered a total of $4.9 billion in government subsidies.
“He definitely goes where there is government money,” said Dan Dolev, a senior vice president and financial analyst at Jefferies Equity Research, in the Times’ article. “That’s a great strategy, but the government will cut you off one day.”
The financial support comes as a mix of tax incentives, grants, property tax exemptions and rebates. According to the Times, the current totals break down like this:
Tesla Motors: $2.391 billion
SolarCity: $2.516 billion
Space Exploration Technologies (SpaceX): $20 million
“The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups,” said the Times.
Ashlee Vance, author of a biography on Musk, noted that states even compete with one another, offering government support to persuade Tesla and SolarCity to build factories within their borders.
But, asked the Times, what reward is the public seeing from all this funding?
“A looming question is whether the companies are moving toward self-sufficiency – as Dolev believes – and whether they can slash development costs before the public largesse ends,” the Times said.
“Musk and his companies’ investors enjoy most of the financial upside of the government support, while taxpayers shoulder the cost.”
The Times also observed that much of the funding has come from private sources, saying that Musk himself used much of his earnings from the sale of PayPal (which he helped found) to fund these projects.
“But,” said the Times, “public subsidies for Musk’s companies stand out both for the amount, relative to the size of the companies, and for their dependence on them.”
While it’s prudent to maintain a level of caution with government spending – especially after automotive companies like Fisker folded after receiving a $192 million loan from the U.S. government – it’s also beneficial to remember the potential gains of such investments.
For example, also listed in the Times’ accounting is $517.2 million that Tesla has earned by selling carbon credits to other automakers. But the news site doesn’t explain that other corporations rely on buying these credits to reduce their overall carbon footprint. Chevrolet currently leads this trend; the $40 million it will have spent by the end of this year is far higher than any other automaker.
The Times said that there is no guarantee the country will benefit from this publically funded support.
“The payoff for the public would come in the form of major pollution reductions, but only if solar panels and electric cars break through as viable mass-market products. For now, both remain niche products for mostly well-heeled customers,” the Times wrote.
After the Los Angeles Times article was released last Saturday, the news site received an onslaught of reactions from readers. As of our press time, more than 530 comments had been entered online, with the number still growing. Others had been submitted via email.
Some viewpoints noted that the government spending is an investment that benefits the greater good:
“It’s worth noting that Tesla has made all of their patents open-source, which isn’t trivial,” said one comment, which was selected as the editor’s top pick by the Times. “On the other hand, it is my strong opinion that the government should subsidize research, development, and deployment of new technologies. I’d much rather have my tax dollars go to solar panels, electric cars, and passenger space travel than Big Oil and Agribusiness.”
“I would like to see the author calculate the tax money saved by Spacex,” was another comment. “The missions to the [International Space Station] have saved NASA, read tax money, hundreds of millions, per flight that is. Money that would have gone to Russia for the most part. Solar City is decreasing America’s dependence on oil, gas, coal and nuclear one roof top at a time … So many American and other lives were lost defending the oil supply needed to keep oil prices ‘low.’ Why does investing in American jobs to prevent the loss of life suddenly become a bad thing?”
Others felt the subsidies are unnecessary interventions from the government:
“Farmers, fossil fuel producers, and PBS get tax subsidies. They shouldn’t but they do,” one reader said.
“The various government agencies that are paying for Elon Musk’s empire should be getting stock in return for their investment,” wrote another reader. “When Chrysler needed a government bailout in the ’80s, the government received stock warrants that the treasury department was later able to cash in to recoup their investment. If Musk had gone to venture capitalists to get his funding, he would have had to give them a percentage of the company. Under the present arrangement, Musk gets to keep $10 billion worth of stock all to himself, and the taxpaying public who finance him gets nothing.”
Elon Musk Responds
In an interview yesterday with CNBC, Musk disputed much of the Los Angeles Times article, saying it was inaccurate and misleading.
Similarly to his response to the New York Times’ writer John Broder’s account of running a Model S out of juice in 2013, it seemed this report from a prominent publication particularly irked him enough to strike a personal nerve.
“[I]f [Hirsch] was paid by an oil and gas industry lobby, he couldn’t have written a more favorable article for them,” said Musk.
“The article makes it seem as though my company is getting some huge check, which is fundamentally false,” he said.
“None of the incentives are necessary, but they are all helpful,” Musk said, adding, “The incentives that Tesla and SolarCity receive are a tiny, tiny, pittance compared to what the oil and gas industry receives every year.”
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