Tesla: The Other Government Motors

The Wall Street Journal editorial page exposes electric car maker Tesla for what it is — another taxpayer boondoggle.

The list of the Obama Administration’s industrial policy failures is long, from Solyndra to Fisker Automotive. But now we are hearing that one success redeems them all: Tesla Motors TSLA +5.92% . Tesla’s share price has soared this year on rave reviews for its electric car, growing sales and its first quarterly profit.

Rarely noted is how much this profit is a function of government subsidy and coercion. So let’s take apart Tesla by the numbers, if only to give our reader-taxpayers a better sense of what they’ve paid to make Tesla’s owners rich.

The decade-old Tesla debuted its first product, the Roadster, in 2006. With a base price of $109,000, it was discontinued before it hit 2,500 sales. Tesla introduced its Model S a year ago and had sold an estimated 9,650 at a bargain $70,000 through April. By contrast, Ford sold 168,843 F-series pickup trucks in the first quarter alone.

Tesla wouldn’t have sold even that many cars without the extraordinary help of government. In 2009 the company received a $465 million Obama loan guarantee, supplemented last year by a $10 million grant from the California Energy Commission.

That money has underwritten Tesla’s engineering and manufacturing, but federal and state governments also subsidize the purchase of Tesla products. Any U.S. buyer of a Tesla car qualifies for a $7,500 federal tax credit, while states like Colorado throw in up to $6,000 more in state income-tax credits. Taxpayers pay first so Tesla can build the cars and again to help the wealthy buy them.

Read more at the Wall Street Journal ($ubscription required).

8 thoughts on “Tesla: The Other Government Motors”

  1. One of the characteristics of fascism is an alliance between business and government. It would seem at first that strong, autocratic central control of your business would be undesirable. But the relationship creates a monopoly position for the business. Yeah, the rules are crap, but they are an absolute barrier to any competition, and, as a monopoly, you can always charge the cost off to your customers.

    “Since policy will stifle, policy must be kept to a minimum and every policy carefully weighed.”

    Better the federal government have no authority to make decisions. States can make rules for their banks, insurance companies, and taxis. Federal government decisions will be purely political.

  2. I think that any government policy on manufacturing is likely to select losers simply because no policy is likely to be correct. I think conservatives or libertarians would wind up picking losers too. Too many factors.
    History shows that government policy on the economy is stifling rather than nurturing and the less done, the better.
    Now, some policy is necessary — rule of law to enforce contracts, for example, or requiring that banks and insurance companies be financially sound. I’d require that cab companies operate safe vehicles. Even this necessary policy will have some stifling effect, e.g. a poor soul with a car that has lousy brakes loses the chance to earn a living by driving people around. In that case, though, there’s the genuine externality of the poor soul driving into me when I didn’t ask to ride in his cab.
    Since policy will stifle, policy must be kept to a minimum and every policy carefully weighed.

  3. Companies with viable business plans don’t need to be picked by government. Being picked is the mark of a loser.

  4. At least Tesla is named for a mad scientist and their cars look cool. The GM Volt lacks even that.

  5. The problem is that the base price of materials and parts is so great that you cannot compete on a price with economy cars. It’s been tried. Compare the Nissan Leaf to the Honda Fit. The leaf is a $30,000 car and the Fit is a $13,000 car.

    To drive 100 kmiles, the Fit burns 2,500 gallons of gas and using the exceedingly (or ludicrously) generous EPA estimates, the Leaf burns 1,000 gallons.

    Even ignoring the electric’s higher maintenance, electricity costs, and battery replacement and assuming $5/gal gas, you have a cost of ownership of $25,000 for the Fit and $35,000 for the Leaf. That’s with exceedingly generous assumptions, reality will not be so kind. Electrics have to go after the luxury market because that’s the only market that can afford the costs

  6. That is a root of my dislike for Tesla. If they develop a better electric car, so be it. As of right now they are taking government money to build cars that only a few can afford. Would it not make more sense to build a car that larger numbers would be able to buy and work off of a volume business plan?

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