If there’s a consistent charge against Elon Musk and his high-flying companies — Tesla, SpaceX, SolarCity — it’s that they’re not really examples of independent, innovative market capitalism.
Rather, they’re government contractors, dependent on taxpayer money to stay afloat.
Musk tackled the complaint against last week, in response to an article in the Los Angeles Times by Jerry Hirsch.
Hirsch’s piece was a lengthy analysis of all the government assistance that has flowed in Tesla’s direction.
Musk attacked the article saying in an interview on CNBC that, “if [Hirsch] was paid by an oil and gas industry lobby, he couldn’t have written a more favourable article for them.”
In his interview on CNBC, Musk referenced a blog post he published last year that clarified the terms of the deal, which Musk said made Hirsch’s article “even more inexcusable because he completely ignores what was written there.”
In that post, Musk had written:
Of the $US5 billion investment needed to bring the Gigafactory to full production in five years, state incentives will cover about 5%. Compared to the operational and upgrade costs over a 20 year period, expected to be approximately $US100 billion, state incentives will constitute just over 1%. This makes sense: the $US1.3 billion in incentives mostly consists of alleviating a few per cent of annual property and use tax on a huge amount of equipment over the course of 20 years, an average of about $US50 million per year after initial construction.
However, the 20 year mark is simply when the last of the incentives expires. The Gigafactory itself will continue contributing economically to Nevada for much longer. Our automotive plant in California has been in operation for over 60 years with no foreseeable end in sight.
It stands to reason that the beneficiaries of a project should also contribute to its creation. Given that Nevada will have the largest and most advanced battery factory in the world and a very large number of high-paying direct and indirect jobs, contributing about 5% to the initial construction cost and a few per cent to costs thereafter seems pretty fair.
Finally, with the exception of the land conveyance, all of the incentives approved by the legislature are performance based. We must execute according to plan to receive them, meaning that, while the state and Tesla both share the upside, only Tesla suffers the downside.
For his part, Hirsch argued that Tesla, as well as Musk’s other companies, need government subsidies to survive.
“Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $US4.9 billion in government support, according to data compiled by The Times,” Hirsch wrote. “The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups.”
This is the major criticism of Musk: he presents himself as a hero of capitalism while investing in and running companies that wouldn’t exist without government funding and support.
“Elon Musk is addicted to government money!”
You hear it all the time. We heard it last year when Jason Mattera — author “Crapitalism: Liberals Who Make Millions Swiping Your Tax Dollars” and something of an aggressive rising star in the world of conservative journalism and commentary — went on Fox News and listed Musk’s offenses.
The thing is, critics of Musk who claim the man is reliant on big government to keep his companies afloat aren’t wrong.
But the other thing is that Musk and his companies have never denied this.
When I was reporting on Tesla during some darks days for the startup back in 2008, the company made it abundantly clear that it needed to hit certain marks to obtain a Department of Energy loan guarantee and stay in business.
A few years later, Tesla warned in an SEC filing that its DOE guarantees represented a meaningful business risk, something that investors needed to be aware of.
“We are dependent upon our ability to fully draw down on our loan facility from the United States Department of Energy, which may restrict our ability to conduct our business,” the company said in early 2010.
As for SpaceX — Musk has never pretended that there would be a SpaceX without NASA. The space agency is by far the growing private space company’s most important customer.
Mattera focuses on the fact that Tesla can sell zero-emission credits in California to automakers who don’t produce enough zero-emission vehicles to satisfy the state’s requirements.
And of course SolarCity customers can claim tax credits when they use the company to provide solar panels. This mitigates some of the cost of installing the technology.
SpaceX, for its part, was in the right place at the right time to help NASA transition from the Space Shuttle to deep-space manned missions.
But Musk isn’t trying to hide this stuff. He just happens to have two companies that are in the green-energy and green-transportation spaces — businesses that the government is actively encouraging. He’s savvy and entrepreneurial in the sense that he’s got his companies in the right place at the right time. The government is interested in stuff like space flight, satellite launches, electric cars, and solar power. It can leave messaging apps and social networks to Silicon Valley and its well-established venture-capital funding matrix.
You bet we’re addicted to government money! Musk might say. It’s a total win-win, if everything works out.
Musk would certainly argue that the benefits of what Tesla, SpaceX, and SolarCity offer outweigh the cost to the taxpayers. In fact, he would argue that his companies represent the ideal public-private partnership — maybe more than ideal Why? Because Tesla is an investment in alleviating global warning, because SolarCity is an investment in energy independence (and alleviate global warning), and SpaceX is an investment in making humanity “multiplanetary” — so that if global warming or an errant asteroid does doom Earth, we have backup through colonies on other planets in the Solar System.
You’re going to need the government to help out when your ambitions are that grand.
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