ELON MUSK’S $5 BILLION IN GOVT SUBSIDIES HELPS MAKE ENDS MEET
If you build it we will come could be the mantra for Los Angeles billionaire mogul Elon Musk.
Well the Los Angeles entrepreneur built Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, and what came was an estimated $4.9 billion in government subsidies, according to data compiled by The Los Angeles Times.
“He definitely goes where there is government money,” said Dan Dolev, an analyst at Jefferies Equity Research. “That’s a great strategy, but the government will cut you off one day.”
Now after a plethora of government incentives, such as grants, tax breaks, factory construction, discounted loans, environmental credits that Tesla can sell, tax credits and rebates to buyers of solar panels and electric cars, questions remain whether these companies can make it on their own and are they worth the investment of taxpayer funds.
Although stock prices have risen for both Tesla and SolarCity–Musk’s slice of the pie is estimated at $10 billion–both companies haven’t made a profit in over 10 years and are still reporting huge net losses. Tesla stock has risen 157% over the last two years, to $250.80 as of Friday’s close.
Space X, the L.A. mogul’s private company, does not have to show its financial statement—a private company which enjoys more than $5.5 billion in government contracts from NASA and the U.S. Air Force.
Unfortunately, Musk and his companies’ investors reap all of the financial rewards of the government support, while taxpayers assume much of the cost.
The benefit for the public supposedly is less pollution, but that only happens if solar panels and electric cars become viable mass-market products. So far, neither contribute to a serious reduction in pollution and remain niche products mostly for the wealthy. The average Tesla owner’s household income is about $320,000, according to Strategic Visions, an auto industry research firm.
Moreover, solar energy panels may be on the brink of extinction as handsome tax credits for consumers will end in 2017. On top of that, although now Tesla buyers get a $7,500 federal income tax credit and a $2,500 rebate from the state of California, these incentives go away after the battery operated cars hit the 200,000 in sales mark. Tesla so far has sold about a quarter of that.
“Government support is a theme of all three of these companies, and without it none of them would be around,” Mark Spiegel observes. The Stanphy Capital Partners hedge fund manager is shorting Tesla’s stock, a bet that pays off if Tesla shares fall.
All this being said, Musk announced last month the opening of his new venture to sell large batteries to allow homeowners to store electricity. The Powerwall home battery starts at $3,000. Musk has already secured a commitment of $126 million in California subsidies.