Last Saturday, the LA Times took a shot at entrepreneur Elon Musk’s growing energy empire:
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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.
“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.”
In response, Musk attempted to deflect attention from the story on CNBC, claiming that, “The incentives that Telsa and SolarCity receive are a tiny, tiny, pittance compared to what the oil and gas industry receives every year.”
Musk is certainly right that the energy industry as a whole also receives a lot of subsidies — over $5 trillion annually according to a recent IMF report. However, comparing a company to an industry is apples to oranges. Most gas and oil companies receive nowhere near the billions in subsidies that Tesla does.
Take the much-hated Koch Industries for example. According to a report by Good Jobs First, Koch companies have received $88 million in government subsidies. While that’s certainly a big chunk of change, it’s only 18 percent of what Tesla receives from Uncle Sam. Considering that Charles and David Koch are outspoken critics of corporate subsidies and have spent millions lobbying against them, Musk’s defense of cronyism seems more shameful.
Granted, it’s understandable that a business would take government subsidies if not doing so would put itself at a competitive disadvantage. In fact, it would arguably be illegal for a corporation to not take government subsidies given its obligation to shareholders.
However, there’s a major difference between accepting subsidies that have little effect on the market demand of your product and relying on them as a general business model. People would still demand oil from Georgia-Pacific if its subsidies were abruptly ended. However, almost no one would demand Tesla cars if subsidies to the green energy industry were likewise terminated.
Even with such green energy subsidies in place today, Musk’s cars remain a luxury item in the United States. The federal government grants a $7,500 tax credit for each purchase of a Tesla. This demonstrates the perverse truth about corporate welfare — it robs from the poor to pay the rich. Investors should keep a critical eye on any CEO who defends them, Musk included.