The many companies run by Elon Musk are excellent case studies in cronyism. Recently, members of Congress have raised concerns about the lack of oversight into SpaceX’s, Musk’s space exploration company, regarding a launch failure it suffered in late June. However, SpaceX’s use of government funding, subsidies and tax credits is the big scandal. A June article by Los Angeles Times, “Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies,” provided evidence that the government is loading up Musk’s three companies, SpaceX, Tesla and SolarCity, with taxpayer-backed subsidies. This is not fair to Americans who are hurting right now that they are being used to pad the pockets of a guy who is already super rich—yet his companies would be belly up without massive infusions of money from taxpayers.
The Times reported “Tesla and SolarCity continue to report net losses after a decade in business, but the stocks of both companies have soared on their potential; Musk’s stake in the firms alone is worth about $10 billion.” Of course the stock is soaring, because the government has subsidized the billionaire’s companies with even more billions. Investors know the government is insuring that money will flow into a crony’s company and that makes it a good bet. SolarCity has been the beneficiary of $750 million from the New York taxpayers to build a solar panel factory in and has secured a lease for $1 a year with no property taxes. The federal government has provided direct grants of about $500 million. Solar analyst Travis Hoium had this to say about SolarCity: “Simply put, the company wouldn’t exist in the form in which we now know it without the government funding.”
Tesla motor company has secured $1.3 billion in incentives to help build a battery plant in Nevada. USA Today reported that the Tesla $127,000 deluxe electrical performance sedans were undrivable because of a tech glitch. The government is subsidizing the manufacture of cars that would cost the average American about two and one half years to buy. The cars are very expensive and they don’t seem to work well. I would not invest in this company, yet it seems that the Obama Administration has already made that decision for me when they gave them $452 billion as part of the Stimulus plan.
SpaceX company has been awarded billions of dollars in government contracts with much of the work yet to be completed. For example, the SpaceX rocket that recently exploded was being launched in an attempt to deliver cargo to the International Space Station as part of a $1.6 billion contract. While Congress has questioned the technical investigation into the failure, SpaceX continues to compete for government contracts.
There have been multiple articles recently on SpaceX purchasing $165 million of SolarCity bonds. Elon Musk owns more than 20 million shares, which is 20 percent of SolarCity. Musk will personally benefit substantially if the SpaceX purchase brings other investors to SolarCity.
It is unusual for a company to utilize cash to invest in the debt of a higher risk company, because it is not a good business decision. It may be good for one man, Musk, but it is not a smart investment for everybody else. In June 2014, the NASA Office of Inspector General found that SpaceX could not identify the costs incurred and was not able to separate the amounts billed and collected for Space Act Agreement contracts. These are the very same type of contract NASA issued to SpaceX to launch cargo to the International Space Station.
A grand total of $4.9 billion in government money has been entrusted to Elon Musk from the taxpayers. Let’s hope that the government does not throw more good money after the bad and continue to prop up Musk’s companies that are not making any money.
Short version: a majority of US legislators enacted tax laws promoting development of solar power, electric cars, and space travel; a capitalist is capitalizing on the method of this promotion - and for some reason people are surprised.
Unlike Solyndra et al who pocketed taxpayer money and disappeared, Musk is actually building viable businesses via this capitalization process.
The article you quoted is a straight-up hit piece. “the Tesla $127,000 deluxe electrical performance sedans were undrivable because of a tech glitch”? you think that glitch wasn’t fixed in short order? “The cars are very expensive and they don’t seem to work well”? the prices are plummeting toward a normal $30k/car, and of late scored 103 out of 100 points on Consumer Report’s car ratings. Yes, the government has dropped billions into Musk’s companies - exactly the way the subsidies were implemented; Musk himself has also poured billions of his own dollars (he made a boatload of money creating & selling PayPal) into them as well.
We may agree that the government shouldn’t be funding such ventures. We should also agree that a capitalist making use of those funds in a successful manner is appropriate. We should also agree that there is a difference between a capitalist leveraging opportunities to build a business is NOT the same as legislators creating ways to funnel boatloads of money into their friends’ pockets.
Government invests billions in speculative companies to make sure they make a profit? Really? Maybe I'm wrong, but in new tech ventures like Tesla, the investments are to help develop the technology, whether profits are made or not. Our interest is in helping the technology to take the next step, not in making sure individual owners make certain amounts of money.