Tesla, Fairest Welfare Queen of all, Cracks the Whip

Tesla is famous for building stylish, zero-emission electric cars in small numbers – by now maybe 3,000 in a good month against global auto production of over 6 million a month. Loaded, the Model S stickers for over $100,000. A cool, “green” car for wealthy people.

And it’s not necessarily a reliable set of wheels. No one really expects it to be. The company is still learning the ropes. Designing a car is the easy part. Making and selling them in large quantities for a profit is much harder – an impossible feat so far for Tesla. And making cars where every little thing holds up for years while in daily use, the Holy Grail for automakers?

Edmunds has been testing a loaded $105,000 Model S for over 30,000 miles. During that time, the car developed a long list of major and minor problems. Among them, the “drive unit” – the motor in regular cars – had to be replaced not once but twice. The most expensive part of the car, the battery, had to be replaced as well. And there were some “unresolved” mystery problems, like windows that lowered automatically.

Consumer Reports – which had fawned over the car previously – is having second thoughts after driving it for 16,000 miles. It had “more than its share of problems,” the statement said, according to Reuters. Among them: “the center screen went blank, eliminating access to just about every function of the car.”

And when a stolen Model S crashed during a chase, it split into two and ejected the driver. One half of the car burst into flames. This just isn’t supposed to happen with modern cars.

But hey, give Tesla a break. It hasn’t had a chance yet to go search for the Holy Grail of auto manufacturing. However, there is one area beyond manipulating its stock price into the stratosphere where Tesla, which has been hemorrhaging cash since 2003, excels: sucking money out of investors and taxpayers.

Buyers get the federal electric-car tax credit of $7,500. In California, they get an additional $2,500 tax rebate (until funds are exhausted), for a total of $10,000, available only for buyers wealthy enough to buy a Tesla. Other states have similar programs. These taxpayer funds, in effect, subsidize the company. Without them, Tesla would have to cut its prices to compete with gasoline powered luxury cars – and it would hemorrhage even more cash.

If Tesla ever manages to sell 50,000 cars per year in the US, the federal subsidy alone would amount to $375 million per year. Plus state subsidies! And if its wildest dreams come true and it can sell 100,000 vehicles per year in the US – still puny, in our 16-million vehicle market – state and federal subsidies would approach a cool $1 billion per year.

Tesla has benefited from other welfare programs as well, including a loan of $465 million in 2010 from the DOE, which Tesla paid back in May 2013 after its hype machine attracted $1 billion in a stock and debt offering.

Now it’s hunting for more taxpayer subsidies, bigger ones, all over the US, for its “gigafactory” that is supposed to make batteries for Tesla’s less expensive future model. Tesla claims that the $5 billion plant will employ 6,500 people. And the California government – along with the governments of Nevada, Arizona, New Mexico, and Texas – is pulling out its wallet: The new tax break could reach $500 million, or $77,000 per job.

Not that Tesla is the only corporate welfare queen currently trying to stick it to Californian taxpayers. The LA Times reported:

With almost no debate, the state Assembly on Monday unanimously approved a nearly half-a-billion dollar potential tax credit for Northrop Grumman Corp. should it win a new Air Force bomber contract and build the aircraft in California.

This is a sister bill to a similar one for Lockheed Martin and Boeing which are bidding the same $55-billion endlessly ballooning bomber contract. Gov. Brown signed that bill in July. However, no one has yet explained to Americans in California or elsewhere why the heck we need to blow $55 billion – and likely much more – on another bomber….

Be that as it may, for that $500 million in tax incentives spread over 15 years, Northrop promised to create 1,100 jobs in California, at a cost to California taxpayers of $454,000 per job. By comparison, Tesla is outright cheap.

Very ironically for a company that hypes its “green” credentials and products – coal-powered cars? – at every opportunity, Tesla is also demanding to be exempted from the California Environmental Quality Act, known as CEQA. The statute requires state and local government agencies to review development projects, and if they find threats to the environment, suggest ways to mitigate or eliminate any potential damage. It was put in place by Governor Ronald Reagan in 1970!

“It would help them speed the process,” explained State Senator Ted Gaines, a Republican, after he’d met with Tesla executives, according to the LA Times. He and Senate President Pro Tem Darrell Steinberg, a Democrat, coauthored the Tesla incentive bill. And so the office of Gov. Jerry Brown is feverishly negotiating with Tesla over waivers for big portions of the CEQA, Gaines said.

Tesla wants to skip or limit the strict pre-construction environmental reviews of its plans so that it can “start construction and mitigate any potential damage later,” the LA Times reported, based on “state officials who said they were familiar with discussions but not authorized to speak about them.” The laundry list also includes a limitation on lawsuits that might slow construction.

Lawmakers and the Brown administration are rushing to get this thing wrapped up before the end of the legislative session in August, Gaines said.

“Timing for the gigafactory is very important,” explained Tesla spokesman Simon Sproule. “So all five states in the running for the gigafactory need to demonstrate, among other factors, that they can help us deliver the factory on time.”

Tesla cracks the whip. California’s harried taxpayers jump through hoops. Environmentalists, the very people who’ve raved about Tesla, the builder of “green” cars, are unceremoniously shoved aside. And people clamoring for fairness – like David Pettit, an environmental lawyer, who lamented the two systems of law, “one for the super-rich, and one for the developer doing multifamily housing” – will be made short shrift of. No one is allowed to get in the way of Tesla.

Despite puny sales and big losses, Tesla’s market capitalization is $32 billion. GM, whose sales last quarter were 64 times higher than Tesla’s, is valued at $54 billion. But there is a reason: no one excels at hype like Tesla and the Wall Street machine behind it.

The game has been honed to perfection. Everyone is playing along. And it performs miracles. Or it did. Because just now, it inexplicably conked out. Read…. The Wall Street Hype Machine Suddenly Breaks Down

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  16 comments for “Tesla, Fairest Welfare Queen of all, Cracks the Whip

  1. Miggy
    Aug 13, 2014 at 6:54 am

    Sounds like Tesla is a “funnel” company to get funds from the public to the politicians. When you start talking about billions skimming a little means a lot and finding an expense column for the skim is relatively easy.

    Tesla was the poster company for a short squeeze last year. The fix was in.

    • Aug 13, 2014 at 7:01 am

      California politicians certainly love Tesla, whatever the reason.

  2. Allan
    Aug 13, 2014 at 8:10 am

    Give it time. The end results may well be worth it.

  3. Petunia
    Aug 13, 2014 at 11:10 am

    I see a bond deal in my crystal ball. The state pays to play and the taxpayers get stuck holding the bag. Tesla gets a shiny new factory for free.

  4. David R.(Canada)
    Aug 13, 2014 at 1:57 pm

    What a scam! Electric vehicles have been around for at least a hundred years; we do not need to reinvent the mousetrap.
    The only thing new about these cars is the power storage. Everything else is old-tech (or should be). A lot of perfectly reliable drive trains can simply be bought off the shelf of fork-lift dealers or from manufacturers of milk-floats. These parts have proven reliability, without any high-tech nonsense or rare-earth metals.
    All it should take is one or two clever guys and it’ll get done. Any more and it’s “too many cooks spoiling the broth”. It’s just a bunch of engineers trying to justify their jobs.
    Whenever I read about this kind of nonsense I just laugh. Whether it’s GM, Nissan, Toyota or any others, it’s always a cluster-f**k.

    • Stephen Pace
      Aug 13, 2014 at 10:03 pm

      @David R: Just because something is some way for a long time, doesn’t mean it will be that way forever. I’m sure the buggy whip manufacturers thought cars were a fad when they first saw them–they were expensive, broke down a lot, and there weren’t a lot of places to fill up. But those issues got solved. The reason electric vehicles didn’t catch on 100 years ago is because energy storage didn’t improve at the rate that the internal combustion engine did. The difference now? Everyone is carrying around a smartphone and a laptop, and battery technology has been improving at 8% a year. The Tesla Model S stacks up well against cars in its class like the Audi A8 and BMW 7 Series, but certainly all of those cars are expensive vehicles today. However, if Tesla is successful in reducing the price of batteries 30% more with their Gigafactory, Tesla should be able to put out a base $35k car with a 200 mile range that has the cost of ownership of a much cheaper Camry (given there is no gasoline to buy, oil to change, or transmissions to service). At that point, it opens up the EV market to a much wider audience.

  5. tesla
    Aug 14, 2014 at 4:32 pm

    you are correct about tesla, what you are wrong about it thinking that the government hasn’t played a major role in the creation of any large INDUSTRIAL company in america. oil and industrial sector companies AND agricultural sector companies have always in the past and in the present received major government money. 1 billion a year is nothing compared to the tax benefits of exxon and shell.

    tesla is learning the game. and to be fair, the electric car revolution, which is likely still decades away because the BATTERY technology remains insufficient to scale up to tens of millions of cars produced ——still has to get its ‘start’ somewhere.

    gm, toyota, ford and tesla are all part of the beginning of this glorious story.

    • Aug 14, 2014 at 5:09 pm

      Indeed, they’re all doing it. And not just the automakers. That’s why I pointed out the shenanigans going on right this minute in the Legislature to use California taxpayer money to offer subsidies to the companies so that they might build the new bombers in California. Boeing did the same (only worse) to Washington taxpayers. Ad infinitum.

      But you hafta admid, Tesla is truly awesome at it (and it hasn’t even figured out yet how to make money).

    • Allan
      Aug 14, 2014 at 5:12 pm

      Tesla may well be onto something huge (batteries for countless applications) and should be supported in its efforts. I hardly think Elon is really in it to skim taxpayers money. It may be a bit distasteful seeing governments kowtow to big business but this isn’t new. Frankly, I can’t think of a better place to invest my tax dollars. Its not as though he’s building a nuclear reactor.

  6. Stephen Pace
    Aug 14, 2014 at 7:39 pm

    Wolf Richter writes: “If Tesla ever manages to sell 50,000 cars per year in the US, the federal subsidy alone would amount to $375 million per year.”

    Incorrect. As an owner, I got the $7500 federal tax credit. Tesla didn’t receive it. Any EV owner from Nissan to Tesla gets it, not the manufacturer. Tesla did receive a $465M loan from the feds, but they paid it back with interest, unlike Ford and Nissan which received much larger amounts under the same program.

    • Aug 14, 2014 at 8:19 pm

      Actually, Stephen, this is what I wrote (note the words “Buyers,” and later, “in effect, subsidize the company”):

      “Buyers get the federal electric-car tax credit of $7,500. In California, they get an additional $2,500 tax rebate (until funds are exhausted), for a total of $10,000…. These taxpayer funds, in effect, subsidize the company. Without them, Tesla would have to cut its prices to compete with gasoline powered luxury cars – and it would hemorrhage even more cash.”

      That’s how that works. You got the $7,500. Without the tax credit, Tesla would have to lower its price, if you assume that there is any kind of price elasticity in a Tesla (and I guarantee you, there is!).

      • Stephen Pace
        Aug 15, 2014 at 5:06 am

        Okay, if you meant, fine. But I’ve said for a long time that elimination of the federal tax credit would hurt cheaper vehicles like the Leaf much more than Tesla. The majority of Tesla owners would have still purchased their cars without the tax credit. Tesla has already shown that there is price elasticity for the car because the price of it has gone up significantly since release in real terms once Tesla unbundled and repriced available options. For example, my car with the same options ordered today would be approximately $15k more than what I paid.

        Also, as we saw yesterday, Tesla isn’t seeking an exemption from CEQA as was initially reported erroneously.

        • Aug 16, 2014 at 8:33 am

          So to set the record straight: here is State Senator Ted Gaines confirming on Aug 15, on CNBC, that the California package for Tesla will include exemptions to CEQA….
          http://video.cnbc.com/gallery/?video=3000302265

        • Stephen Pace
          Aug 16, 2014 at 3:16 pm

          @Wolf: And at the start of the video you posted, the reporter confirms that Tesla did not ask for any exemptions, and Tesla directly said it did not ask for exemptions after the first set of stories. It seems clear that California is going ahead with it because they think it will give them an edge, perhaps to speed construction, not that they think the plant will have a negative environmental effect.

        • Aug 16, 2014 at 5:52 pm

          Yes, Stephen, I completely got that Tesla didn’t officially ask for the exemptions but that the Legislature is handing them to Tesla anyway.
          :-)

  7. Allan
    Aug 14, 2014 at 7:49 pm

    Once tens of millions of US households are generating their own solar power, storing it in a Tesla battery the size of a washing machine and powering their homes we’ll all be living in a better world. With so much government funding going towards dead end projects why are you picking on Tesla? At least this has some potential. Don’t forget these are the same folks that managed to get a successful space cargo vehicle built in record time. This is a different group of people.

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