Los Angeles based entrepreneur Elon Musk has created a multi-billion dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space.
And these companies have been built with the help of billions of dollars in government subsidies.
According to data compiled by The Times, Tesla Motors Inc., SolarCity Corp and Space Exploration Technologies Corp. (SpaceX) have together received an estimated $4.9 billion in government support. The numbers shed light on an emerging theme running through Musk’s business empire: a public-private financing model to manage the risk of launching long-shot start-ups.
As Dan Dolev, an analyst at Jefferies Equity Research, said:
“He definitely goes where there is government money. That’s a great strategy, but the government will cut you off one day.”
The subsidies are made up by a combination of government incentives, tax breaks, grants, factory construction, discounted loans and environmental credits that Tesla can sell. The total figure of $4.9 billion also includes tax credits and rebates to buyers of solar panels and electric cars.
An important question is whether his companies are moving towards self-sufficiency, and whether they can slash their development costs before public generosity ends.
Tesla and SolarCity continue to report net losses after a decade in business, yet the stock in both companies has continued to grow. Musk’s stake in the firms alone is worth about $10 billion.
Musk and his investors continue to enjoy the financial upside of creating companies that have received significant government support, even though everyday taxpayers have shouldered the burden and haven’t yet seen a return.
The public would benefit if Musk can achieve his vision of solar panels and electric cars breaking through as viable mass market products. For now, his products have only been made available as niche products for people who can afford them.
New York state is currently spending $750 million to build a solar panel factory in Buffalo for SolarCity, and Musk’s company will lease the plant for $1 per year without paying any property taxes which would otherwise total $260 million.
In a similar project, Nevada has agreed to provide Tesla with $1.3 billion in incentives to help build a massive battery factory near Reno.
On a smaller scale, Space X received $20 million in economic development subsidies from Texas to construct a launch facility there.
Subsidies aren’t necessarily a terrible thing. They are handed out in all kinds of industries by government as a way to provide incentives so that the market delivers products and services that are supposedly best for society. If Musk is successful and achieves mass market appeal for his electric cars and solar panels, then we may be generating less pollution in the environment.
Yet the number of subsidies given to Musk’s companies is notable for the total amount and the fact that Musk’s businesses have not arrived at sustainable business models.
“Government support is a theme of all three of these companies, and without it none of them would be around,” said Mark Spiegel, a hedge fund manager for Stanphyl Capital Partners who is shorting Tesla’s stock (a bet that pays off if Tesla shares fail).
In fact, Musk has become so good at landing money from the government that states are now competing to give him money, says Ashlee Vance, author of Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.
“As his star has risen, every state wants a piece of Musk,” Vance said.
Musk stands to benefit financially if his companies are successful. He owns 27% of Tesla and 23% of SolarCity.
In a 2008 blog post, Musk shared his plan that after the sports car, Tesla would produce a sedan costing “half the $89k price point of the Tesla Roadster and the third model will be even more affordable.”
Yet the second model now sells for around $100,000 and timing on a less expensive model is uncertain. Teslas are still beyond reach for average Americans.
As Musk wrote in 2008:
“Are we really in need of another high-performance sports car? Will it make a difference to global carbon emissions? Well, the answers are no and not much…. When someone buys the Tesla Roadster sports car, they are actually helping to pay for the development of the low-cost family car.”
The world needs more people like Musk who are trying to create businesses that will improve the state of the world. But it’s important that everyone understands the dynamics involved and the financing provided by tax payers to help launch Musk’s businesses.
The average American has financed Musk’s companies but still can’t afford to drive a Tesla car. Is this fair and is Musk being upfront about how he’s built his business empire?
Have your say by responding in the comments below, or you could join Ideapod and create your own ideas. There are many conversations happening now on the topics of climate change, renewable energy and Elon Musk.
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