The Times published an article over the weekend titled “Elon Musk’s growing empire is fueled by government subsidies”. The article is well-researched and mostly accurate, but it conveys a clear disdain for the fact that Musk’s companies are taking advantage of the government subsidies available to them.
The publication compiled data from government programs and came to the conclusion that Tesla Motors, SolarCity and SpaceX, three companies Musk is involved in, have benefited from an “estimated $4.9 billion in government support”. I will not dispute the actual amount, but I’d like to bring up a few points which weren’t discussed in the article and that are highly relevant to the subject.
First of, the $4.9 billion figure appears to includes money Tesla Motors received from the ZEV program. Although the author mentioned that the money is coming from other automakers and not tax payers, he failed to explain that the government is not actually forcing automakers to finance Tesla through the program:
“The Palo Alto company has also collected more than $517 million from competing automakers by selling environmental credits. In a regulatory system pioneered by California and adopted by nine other states, automakers must buy the credits if they fail to sell enough zero-emissions cars to meet mandates. The tally also includes some federal environmental credits.”
This government program predates Tesla by decades and is financed by car companies who don’t offer or manufacture enough zero-emission vehicles to comply with the mandate. Manufacturers who don’t have enough credits to compensate for the number of pollution emitting cars sold in the “CARB states” have to either pay a $5,000 fine per missing credit or they can buy credits from manufacturers with a credit surplus like Tesla. At any point they can simply decide to pay the fine instead of financing Tesla. The program is overwhelmingly appreciated by everyone but the few automakers who have yet to make environmentally-friendly vehicles a priority.
Although not explicitly mentioned, the figure seems to also include the DOE loan Tesla received in 2010:
“The figure compiled by The Times comprises a variety of government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It also includes tax credits and rebates to buyers of solar panels and electric cars.”
This $465 million loan from the Department of Energy was paid back in advance with interest in 2013. The money was awarded based on milestones and required matching private capital. American tax payers actually made money on this loan to Tesla which was part of the Advanced Technology Vehicle Manufacturing program. Through the program, Ford was awarded $5.9 billion and Nissan $1.4 billion among others.
The article went on about the state of New York spending $750 million to build a factory for SolarCity:
“New York state is spending $750 million to build a solar panel factory in Buffalo for SolarCity. The San Mateo, Calif.-based company will lease the plant for $1 a year. It will not pay property taxes for a decade, which would otherwise total an estimated $260 million.”
The state is indeed spending $750 million to build a factory for SolarCity, but the state will own the factory. The state expects to spend $350 million to build the plant and $400 million for equipment. Since they will be owning the factory, of course they will cover property taxes, not SolarCity. The company secured a $1 per year lease for the next 10 years with an option to renew. SolarCity would have to spend $5 billion over the term of the lease and employ directly 1,450 workers at the Buffalo factory and 2,000 additional employees in New York
If SolarCity was to fail to deliver on these terms, they are subject to a $41.2 million penalty payable to the Research Foundation of SUNY, the organisation overseeing the project for the state, for every year they don’t comply with the terms. Not only the state’s investment is backed by the fact that they own the infrastructure, but they also get their money back if SolarCity fails to properly utilize the money invested.
Similar terms are also included in the agreement Tesla has with the state of Nevada for the “Gigafactory”. The Times’ $4.9 billion figure includes the estimated $1.3 billion in tax breaks Tesla is expected to receive for their battery factory project. In this case, Tesla owns the project, but if they fail to deliver on the 6,500 expected new jobs, they will see the $1.3 billion figure being significantly reduced.
The author quoted Dan Dolev, an analyst at Jefferies Equity Research:
“He definitely goes where there is government money. That’s a great strategy, but the government will cut you off one day.”
The article leaves us thinking that the purpose of these companies is to operate in heavily subsidized industries rather than operating in industries extremely important to the future of our planet and therefore are subsidized by the government.
Also, whenever the subject of subsidies for green technologies comes up, I always like to remind how whatever figure you can come up with, it will always be dwarfed by the fossil fuel subsidies. Here is the recent report on Global Energy Subsidies from the IMF.
Update – June 1st 15:45 ET: Musk went on CNBC to argue against the LA Times article. You can watch the video here: