Musk Says He Doesn’t Need Subsidies, But Still Wants Them
Elon Musk sought to downplay reports that his companies have received $4.9 billion in government support, saying subsidies are important “catalysts” for economic activity.
“None of the incentives are necessary … [but] they are all helpful,” Musk said Monday in an interview with CNBC, adding that criticism of the economic development subsidies his companies have received is “misleading and deceptive.”
Musk gave the interview to articulate his response to an article in The Los Angeles Times on Saturday, which reported that three of Musk’s companies—Tesla Motors, SolarCity, and SpaceX—have together benefitted from nearly $5 billion in tax breaks, grants, and other government subsidies.
Although they are hardly the only firms on which tax dollars are lavished, the article asserts that the incentives awarded to Musk’s companies stand out both for their extent relative to the size of the recipients, and for the degree that the businesses depend on continued subsidization.
Even as Tesla and SolarCity continue to report annual losses after a decade in business, The Times notes, their stock prices are still rising, with Tesla posting a 157 percent increase over the last two years. (RELATED: Solar Subsidies Could Let Musk Double Dip)
“Government support is a theme of all three of these companies, and without it none of them would be around,” Mark Spiegel, a hedge fund manager for Stanphyl Capital Partners, told The Times. Spiegel is shorting stock in Tesla, meaning he has sold borrowed stocks with the expectation that Tesla’s share price will fall once subsidies dry up, allowing him to buy the shares back for less than they were sold.
Musk declined to be interviewed for the Times article, instead taking to the airwaves to deliver his rebuttal in a friendlier forum. In the CNBC interview, he argued that it is unfair to demonize him for taking financial assistance from taxpayers without considering the economic benefits that arise from them. (RELATED: Europe’s Green Energy Industry Faces Collapse as Subsidies are Cut)
He pointed out, for instance, that the $1.3 billion that Nevada has offered Tesla as an incentive to build a large battery factory in the state is actually due to be paid out in annual installments of a little over $50 million over 20 years. Over those same 20 years, he added, the agreement requires Tesla to generate about $100 billion in new economic activity, “which means the incentive is actually only a little over 1 percent.”
Moreover, Musk said, subsidies should not be evaluated based whether they are necessary, which he admitted they are not in the case of Tesla, SolarCity, and SpaceX. Their real value, he claimed, is that they serve as “catalysts that improve the rate at which a certain thing happens. They cause this good thing that voters think is good to happen faster than might otherwise [be the case].”
The Times responded with a second article Monday night highlighting inconsistencies between Musk’s comments in the CNBC interview and Securities and Exchange Commission filings made by his companies revealing that subsidies are, in fact, a vital part of their business models.
In 2010, SolarCity reported to the SEC that the possibility of failing to meet the conditions of a government loan guarantee represented an actual risk to investors, saying, “We are dependent upon our ability to fully draw down on our loan facility from the United States Department of Energy, which may restrict our ability to conduct our business.”
The situation had apparently not changed much by this February, when SolarCity again warned the SEC that, “The expiration, elimination, or reduction of … rebates, credits, and incentives would adversely impact our business.” (RELATED: Solar Industry Demands Extension of Subsidies)
Subsequently, Tesla wrote that, “We have a history of losses and have to deliver significant cost reductions to achieve sustained, long-term profitability and long-term commercial success.”
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