Elon Musk, the Tesla and the fine art of the taxpayer subsidy
We shouldn’t think people like Musk succeed all on their own without government help. In fact, they rarely do without
Not since the late Steve Jobs has a Silicon Valley entrepreneur become such a global tech icon as Elon Musk. The founder and head of Tesla, SpaceX and SolarCity, who is in Hong Kong this week promoting his electric cars, has a worldwide cult following.
I am as admiring of the guy as anyone. However, that should not distract us from the fact that his cult status as a hi-tech visionary actually costs us money as taxpayers and contributes to the overvaluation of the equities in his companies.
Tesla’s Model S vehicle accounts for over 70 per cent of all electric vehicles on the road in Hong Kong. As taxpayers, we help promote his cars by waiving the first registration tax on electric vehicles. Also, companies that buy electric cars can claim tax deductions in the first year.
Thanks to the hype, Tesla and his other companies get tax breaks and subsidies all the time.
An analysis in May last year by the Los Angeles Times found that Tesla, SolarCity and SpaceX have collected or received commitments for US$4.9 billion in government support in the United States alone, both at state and federal levels.
For example, according to the Times, New York state has spent US$750 million to build a solar panel factory in Buffalo, which SolarCity will lease for US$1 a year. It will not pay property taxes for a decade.
The US federal government also, according to the same analysis, provides grants or tax credits to cover 30 per cent of the cost of solar installations.
As a result, SolarCity received US$497.5 million in direct grants from the US Treasury Department. Meanwhile, Nevada will provide Tesla with US$1.3 billion in various incentives to build a state-of-the-art battery factory. It also receives numerous environmental credits at the federal level.
Even with all the support, Tesla and SolarCity are still in the red after a decade in business. But their share prices have soared on the hype. Tesla is on a 12-month forward price-to-earnings ratio of 110.
Don’t get me wrong. It’s probably far better for governments to pay or subsidise entrepreneurs like Musk to take on enormous risks for businesses that clearly have great benefits for society than monopolies or sunset industries with vested interests.
But we shouldn’t think people like Musk succeed all on their own without government help. In fact, they rarely do without.