Elon Musk Beneficiary of $4.9 Billion in Government Subsidies

Billionaire wunderkind Elon Musk has had a lot of help from taxpayers.

elon-musk-tesla

Billionaire wunderkind Elon Musk has had a lot of help from taxpayers.

LAT (“Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies“)

Los Angeles entrepreneur Elon Musk has built a multibillion-dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space.

And he’s built those companies with the help of billions in government subsidies.

Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups.

[…]

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. (SpaceX, a private company, does not publicly report financial performance.)

Musk and his companies’ investors enjoy most of the financial upside of the government support, while taxpayers shoulder the cost.

The payoff for the public would come in the form of major pollution reductions, but only if solar panels and electric cars break through as viable mass-market products. For now, both remain niche products for mostly well-heeled customers.

Musk declined repeated requests for an interview through Tesla spokespeople, and officials at all three companies declined to comment.

The subsidies have generally been disclosed in public records and company filings. But the full scope of the public assistance hasn’t been tallied because it has been granted over time from different levels of government.

[…]

Subsidies are handed out in all kinds of industries, with U.S. corporations collecting tens of billions of dollars each year, according to Good Jobs First, a nonprofit that tracks government subsidies. And the incentives for solar panels and electric cars are available to all companies that sell them.

Musk and his investors have also put large sums of private capital into the companies.

But public subsidies for Musk’s companies stand out both for the amount, relative to the size of the companies, and for their dependence on them.

“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 fall.

Musk contends that the report is misleading:

“The article makes it seem as though my company is getting some huge check, which is fundamentally false,” he told CNBC’s “Power Lunch.”

[…]

Musk said that “none of the incentives are necessary, but they are all helpful,” referencing incentive packages some of his companies received to build factories in states like Nevada. He said that the reason these incentives exist is because “voters want a particular thing to happen, and faster than it might otherwise occur.”

“That is all that these incentives achieve,” he added.

Musk said that the only incentives he bargained for directly were state-level incentives. These include a small launch site in Texas for SpaceX and a Tesla gigafactory in Nevada. He explained that such incentive packages have existed long before his companies received some of them.

“The incentives that Telsa and SolarCity receive are a tiny, tiny, pittance compared to what the oil and gas industry receives every year,” he said.

Brian Thevenot, deputy business editor at the Times, responded to Musk’s comments by saying that he doesn’t need to defend the story because it speaks for itself.

“I’m actually surprised that he had such a sensitive reaction to this story because, really at its core, it’s basically a business strategy story that’s merely factual,” he said in an interview on CNBC’s “Closing Bell.”

“It paints a picture that I think Elon Musk would agree with, that his business strategy is to incubate high-risk, high-tech companies that promote green technology with the help of billions of dollars of government money,” he said.

The focus here shouldn’t really be on Musk, who’s mostly taking advantage of existing incentives to do worthwhile work. Rather, it should be on the policies themselves.

Given the longstanding goal of eliminating our dependence on Middle Eastern oil imports, public investment in the creation of alternative energy sources and alternative vehicle types is reasonable. The barriers to entry are enormous and unlikely to be met by the market on its own—especially given the massive government subsidies to existing technologies. But it strikes me as odd, indeed, for the taxpayer to shell out huge subsidies to Tesla without also getting a commensurate stake in the company. Why should the taxpayer take the risk directly and get the reward only indirectly?

 

FILED UNDER: Economics and Business, Government, Quick Takes
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. stonetools says:

    Similar to this:

    A plan to tackle climate change by emulating the race to put a man on the moon is launched on Tuesday, aiming to channel billions of dollars in research that will give renewable energy commercial lift off.

    The Global Apollo Programme aims to make the cost of clean electricity lower than that from coal-fired power stations across the world within 10 years. It calls for £15bn a year of spending on research, development and demonstration of green energy and energy storage, the same funding in today’s money that the US Apollo programme spent in putting astronauts on the moon.

    The plan is the brainchild of a group of eminent UK scientists, economists and businessmen including Sir David King, currently the UK’s climate change envoy, Lord Nicholas Stern, Lord Adair Turner and ex-BP chief Lord John Browne.

    You ask a good question, James. I think the government should have a stake in these things. Dunno how much control the government should have, though. One thing is certain: these public-private partnerships are going to be more common, because these difficult, long term projects can’t be done by private industry alone. Would be interesting to hear your libertarian colleague weigh in on this.

  2. James Pearce says:

    Musk said that “none of the incentives are necessary, but they are all helpful,” referencing incentive packages some of his companies received to build factories in states like Nevada.

    Woah. I appreciate the candor here, considering all the retail and hospitality outfits showing up at the Statehouse with their hands out looking for a little subsidy. At least Musk is at work actually innovating, instead of innovating more creative financing arrangements.

    Give the money to Elon Musk. Let Cabela’s fend for themselves.

  3. OzarkHillbilly says:

    and get the reward only indirectly?

    The reward in this case, a cooler planet (or more accurately, not warming as much) for my granddaughter may be indirect, but very real. For some reason or other I’m OK with that. Funny, how that works.

    (Imagine how much more we could help things in this direction if we stopped subsidizing the fossil fuel industry)

  4. Franklin says:

    I agree climate change is a serious problem. Perhaps our most serious problem (and when I say “our”, I’m including our fellow animals and ecosystem). But I guess the question would be is if electric cars (and solar power to charge them) are the most effective use of our money if that’s the problem we are trying to solve.

    By the way, does anybody have a really good link with accurate info as to how much we subsidize the fossil fuel industry?

  5. Rafer Janders says:

    But it strikes me as odd, indeed, for the taxpayer to shell out huge subsidies to Tesla without also getting a commensurate stake in the company. Why should the taxpayer take the risk directly and get the reward only indirectly?

    Bold support by the Republican Joyner for the nationalization of industry? Will wonders never cease?

    Though I wonder whether this demand for the state to get an equity stake in Tesla also extends to all other industries that the US shells out huge subsidies for, such as Exxon Mobil, Halliburton, Shell, AT&T, IBM, Chevron, GE, Wal-Mart, Amazon, Procter & Gamble, Wells Fargo, JPM Chase, Pifzer, Philip Morris, McDonald’s, Verizon, Coca-Cola, etc. etc. All of these companies, after all, are the beneficiaries of massive, massive subsidies, both direct and indirect, from the US taxpayer, so if the above principle applies to Tesla, it has to appy to them as well.

  6. Rafer Janders says:

    @Franklin:

    By the way, does anybody have a really good link with accurate info as to how much we subsidize the fossil fuel industry?

    Depends if you look at only direct or also indirect subsidies. If indirect, by rights you also have to add in the budget of the US Armed Forces which are in large part dedicated to protecting the free flow of oil from the Middle East.

  7. Tillman says:

    I don’t know about indirect rewards or speculating about them. Technically speaking, our bailout of the banks didn’t furnish me with any tax largesse except for the continued existence of financial institutions eager to rip me off and reluctant to lend me money.

    That LA Times article was careful never to say Musk was doing so with federal government subsidies, allowing him to make his point about state subsidies.

  8. Hal_10000 says:

    By the way, does anybody have a really good link with accurate info as to how much we subsidize the fossil fuel industry?

    It’s difficult to pin down, actually, because our tax code is riddled with special loopholes and subsidies for every industry. $5 billion a year is the ballpark figure I’ve seen but it’s less cash than more being able to write off certain expenses. But that’s not unique to the fossil fuel industry. Another reason to simplify or abolish the corporate tax system.

    But it strikes me as odd, indeed, for the taxpayer to shell out huge subsidies to Tesla without also getting a commensurate stake in the company. Why should the taxpayer take the risk directly and get the reward only indirectly?

    We shouldn’t. When it comes to researching technology and science, we should fund that. But when you’re talking about end products that are marketed to the public … well, that’s what venture capital is for. And right now, the wealthy have a *lot* of capital. They can afford the occasional (or frequent) business failure. That’s how capitalism works.

    While I’m big on the government funding science, I’m against this particular form of corporate welfare. Very little of the technology Musk is producing is truly breakthrough tech. I would prefer the government’s money be poured into more pure research that find truly revolutionary technologies (e.g., a battery more advance than lead-acid, the ability to efficiently store energy, nuclear fusion) than minor advances in existing tech. Tesla isn’t going to save the planet. I see no reason to keep pretending that it will.

  9. DrDaveT says:

    But it strikes me as odd, indeed, for the taxpayer to shell out huge subsidies to Tesla without also getting a commensurate stake in the company.

    Just to be clear — are you asking specifically about Musk’s companies, or are you just using Musk as a jumping-off point to question the entire range of federal and state subsidies to various industries and companies? If it’s the former, why are you picking on just him?

    Why should the taxpayer take the risk directly and get the reward only indirectly?

    Where to even begin…

    Let’s pick a concrete example: Texas bribing SpaceX to build a launch facility in Texas. Texas clearly thinks they get something out of that deal — tax revenue, the economic boost of all of those highly-paid jobs, the cultural boost of all of those highly-educated new residents, perhaps some prestige, etc. SpaceX gets money. Is there a problem here? Only if the benefits to Texas aren’t worth the price. It’s not SpaceX’s responsibility to make sure Texas drives a good bargain.

    In general, governments incentivize various behaviors because they think the result is worth the cost (or the lost revenue). They aren’t always right about that, and there are certainly examples of rank corruption (mostly at the state and local level), but it’s just nonsense to make it sound like companies that get subsidies are somehow defrauding the taxpayers.

  10. Tyrell says:

    Solar: there are plenty of instructions out there on how to assemble and hook up solar panels. I have a garage and tools. I also have plenty of time. Maybe I will apply for some of that grant money! I can sell the panels to people around here. The utility company will show you how to hook them up for free.
    At least that grant money can be useful, instead of our tax money going for such things as a study of why kids fall off of tricycles, a tunnel for turtles, or a study of Twitter !

  11. Dave Schuler says:

    A possibility I have entertained from time to time over at my place is that the form that entrepeneurialism takes in the 21st century is rent-seeking. Since the definition of “entrepeneurialism” is the assumption of risks while the definition of “rent-seeking” is to eliminate risks, you can see the problem.

  12. Samantha Atkins says:

    So what? The US government is deeply involved in many lines of business today. It should not be. It is particularly deeply involved in any green tech and products. But if you want some mind-boggling numbers then go look at the fossil fuel related subsidies. And do remember the bailouts given to some US automobile companies.

    Now compare Elon Musk who has repaid all direct loans/grants and put electric cars on the map being one of the very few successful new car manufacturers in the US in 5 decades in the process. At the same time he built up SpaceX inot the first fully viable space launch company. And he is Chairman of SolarCity with is driving solar forward down to the individual customer level.

    Now read a piece trying to denigrate one of the greatest innovators and entrepreneurs of our time and wonder as to the motives of those launching these pointless attacks. He is a real threat to the non-electric auto industry. Many states used to heavy taxes on gas and such are so upset they block sell of his cars in their state. The auto industry generally is not to happy nor is the Big Oil. And the current almost totally government funded and government owned space venture providers are not happy about SpaceX.

    Combine this with our cultural penchant for dragging down anyone successful or at all of heroic dimension and it is easy to see where this comes from.

    Note also that we are not talking $4.9 billion in government loans or grants but in “incentives”. These include everything from the local government agreements mentioned to tax breaks and removing various forms of red tape.

  13. walt moffett says:

    One of these days am sure some one will produce an inflation adjusted accounting of the subsidies given to to say, telegram/telephone, steamship, railroad (Vanderbilt/Carnegie), aerospace (Wright, Curtiss, Boeing) industries without a government slice of the action. Oh btw, whatever happened to that boondoggle called DARPAnet? Since at least the early 19th century tax paer money has financed a lot of innovation.

  14. Ron Beasley says:

    My major objection to government subsidies doesn’t involve tech companies like those run by Musk but the subsidies given to sports teams which innovate nothing.

  15. James Joyner says:

    @OzarkHillbilly: I think the primary motivation in government investment in electric vehicles is energy independence vice global warming. In either case, though, it strikes me that we’d be better off owning either a stake in the companies or in the intellectual property. Musk, to his credit, has made some of the latter public. But I don’t think that was a condition for the subsidy.

    @Rafer Janders:

    I wonder whether this demand for the state to get an equity stake in Tesla also extends to all other industries that the US shells out huge subsidies for, such as Exxon Mobil, Halliburton, Shell, AT&T, IBM, Chevron, GE, Wal-Mart, Amazon, Procter & Gamble, Wells Fargo, JPM Chase, Pifzer, Philip Morris, McDonald’s, Verizon, Coca-Cola, etc. etc

    My objection is in direct investment in companies with no concomitant stake, allowing “entrepreneurs” to take very little risk with potentially massive reward. That strikes me as an inefficient means of incentivizing innovation.

    I actually don’t have anything against Musk or Tesla; indeed, I’d be a customer if the vehicles were somewhat cheaper and they offered a more diverse lineup.

    As for the other firms, I don’t know the nature of those subsidies. The only subsidy of which I’m aware for Halliburton, for example, is that the US Government is a massive customer. But I don’t consider that a subsidy.

    @DrDaveT:

    Just to be clear — are you asking specifically about Musk’s companies, or are you just using Musk as a jumping-off point to question the entire range of federal and state subsidies to various industries and companies? If it’s the former, why are you picking on just him?

    The former. I’m picking on Musk because the story is about Musk.

    Let’s pick a concrete example: Texas bribing SpaceX to build a launch facility in Texas. Texas clearly thinks they get something out of that deal — tax revenue, the economic boost of all of those highly-paid jobs, the cultural boost of all of those highly-educated new residents, perhaps some prestige, etc. SpaceX gets money. Is there a problem here? Only if the benefits to Texas aren’t worth the price. It’s not SpaceX’s responsibility to make sure Texas drives a good bargain.

    I have less qualms about tax breaks and the like than I do direct investment in startups. I’m generally not a fan of the practice, since it creates a race to the bottom in a zero sum competition for jobs, but understand the rationale behind it.

    In general, governments incentivize various behaviors because they think the result is worth the cost (or the lost revenue). They aren’t always right about that, and there are certainly examples of rank corruption (mostly at the state and local level), but it’s just nonsense to make it sound like companies that get subsidies are somehow defrauding the taxpayers.

    I’m not making a fraud argument. Musk is playing the game by the rules that exist. I’m questioning the wisdom of the public policy.

    @Dave Schuler:

    A possibility I have entertained from time to time over at my place is that the form that entrepeneurialism takes in the 21st century is rent-seeking

    Concur. While I get the need for government incentives to overcome some forms of market inertia, I’m uneasy about the degree to which government underpins the economy. Granting that I’m a federal employee myself, the National Capitol Region is at the top of the national per capita income statistics with the overwhelming number of good jobs very closely tied to the federal government.

  16. anjin-san says:

    @James Joyner:

    That strikes me as an inefficient means of incentivizing innovation.

    Can you flesh that out a little bit? After all, there is probably no one alive that can match Musk’s record as an innovator…

  17. Rafer Janders says:

    @James Joyner:

    As for the other firms, I don’t know the nature of those subsidies.

    Oh, come on! This slides from disingenuous to downright dishonest. You’re unaware of the hundreds of billions of dollars in targeted tax breaks, investment credits, favorable legislation as a direct quid pro quo for campaign contributions, farm and crop subsidies, land subsidies, government funded employee training, favorable trade and transportation policies, etc. etc. that those companies receive? This no bigger welfare queen, no greedier pig at the trough, than corporate America.

    The only subsidy of which I’m aware for Halliburton, for example, is that the US Government is a massive customer. But I don’t consider that a subsidy.

    That slide from disingenuous to dishonest is picking up speed.

  18. DrDaveT says:

    @James Joyner:

    I have less qualms about tax breaks and the like than I do direct investment in startups.

    And yet you make no effort in your article to distinguish between the two, or to identify how much of the $4.9B was direct investment. If it matters, it matters.

    Musk is playing the game by the rules that exist. I’m questioning the wisdom of the public policy.

    In Musk’s case, the federal government has probably already recouped its investments (of whatever form) through reduced future costs of launch services provided by former-monopolist United Launch Alliance.

    I’m picking on Musk because the story is about Musk.

    Sorry; that rings about as true as Doug’s repeated assertions that he’s picking on Hillary (again) because the story is about Hillary. If you want to question the wisdom of the public policy, then let’s talk about the policy (or rather, the myriad policies and the various scams that masquerade as policies at various levels of government) and not about one entrepreneur.

  19. James Joyner says:

    @DrDaveT:

    Sorry; that rings about as true as Doug’s repeated assertions that he’s picking on Hillary (again) because the story is about Hillary. If you want to question the wisdom of the public policy, then let’s talk about the policy (or rather, the myriad policies and the various scams that masquerade as policies at various levels of government) and not about one entrepreneur.

    I’m using a major story in the LAT about Musk to talk about a larger issue. Indeed, my substantive comments in the original post begin:

    The focus here shouldn’t really be on Musk, who’s mostly taking advantage of existing incentives to do worthwhile work. Rather, it should be on the policies themselves.

    There are conservative pundits who dislike Tesla and the notion of electric cars. I’m not among them. Most of what I’ve written about Musk and Tesla have been positive.

  20. DrDaveT says:

    @James Joyner:

    I’m using a major story in the LAT about Musk to talk about a larger issue.

    Sorry, I asked you point blank if that’s what you were doing, and you replied with words that seemed to say clearly that no, that’s not what you’re doing. What we have heah is failure to communicate…

  21. Guarneri says:

    Resolved: Musk is the good kind of corporate welfarist……..

  22. Davebo says:

    Just same old quibble.

    Given the longstanding goal of eliminating our dependence on Middle Eastern oil imports

    This is not a goal long-standing or otherwise. Mainly because we are not dependent on oil from the Middle East and also because if we were it’s not a dependence we could do anything about .

    It’s just another political talking point aimed at the clueless by both sides. Reducing global warming however is a reachable goal.

  23. Tyrell says:

    @Rafer Janders: Tesla: 0- 60 mph in 4 seconds !
    The day will come when Tesla will race at the Brickyard !