Elon Musk, America's #1 Crony Capitalist

This is from a couple of years ago, so the numbers will only be larger:

Los Angeles entrepreneur Elon Musk has built a multibillion-dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space.

And he's built those companies with the help of billions in government subsidies.

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."

The figure compiled by The Times comprises a variety of government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It also includes tax credits and rebates to buyers of solar panels and electric cars.

  • ErikTheRed

    And yet way too many so-called libertarians and conservatives worship him and make excuses. He hasn't made an honest dime since he left PayPal.

  • DanSmith

    A common justification for this behavior offered by progressives is that the fossil fuel industry receives government "subsidies", which I take to mean the oil depletion allowance and other business tax breaks. Is this a fair comparison? I'd like someone knowledgeable on the subject to weigh in.

  • Fromhere

    Another gubt parasite that has figured out how to live (very well) off of others.

  • LoneSnark

    If the government is giving away money, he'd be a fool to not apply for it. That money was going to be spent anyway, the legislature said so, it might as well go to someone actually innovating. Again, the fault is not in those that honestly apply for government largess, it is the legislators eager to tax and give it away.

  • joe

    I am a CPA with a background in oil and gas taxation. The concept of " Tax subsidies " for the oil industry is largely a myth (with the exception of percentage depletion in excess of basis). The oil industry, like all industries, only receive the benefit of a tax deduction for money actually spent. There is no phantom deduction allowed. (there is a minor exception for the domestic prodcution activity deduction that applies to all manufacturing industries which hopefully will be repealled). The other major tax break cited by the progressives is the current deduction for IDC. Like all other deductions, this is a cost of doing business and is an actual cost and so it is properly deductible. The only issue is whether the cost should be deductible currently or have the deduction spread out over a period of years via depreciation. The rationale for the current deduction was to encourage oil and gas exploration, since the risk of a dry hole was high.

    You have likely seen many articles/studies on the $dollar amount of tax subsidies the oil industry receives. Repealying the IDC deduction wont increase the tax revenue to the US treasury, it will only change the timing of when the tax revenue is due.

    There are several other "tax subsidies" cited by the progressives which are likewise myths which are beyond the scope of my time available to respond.

  • kidmugsy

    Capitalism, like Science, is a historical phenomenon. It flourished, once upon a time.

  • Nehemiah

    What you say is generally true, however, in Elan's case that isn't quite so. Elan is an excellent salesman of futuristic vision. His pitch actually encourages bureaucrats to create budgets to support his vision. He creates a ground swell of enthusiasm that has officials tripping over one another to get on-board with the vision. It isn't always the case that the money has already been allocated and is just waiting for a grant to fund.

  • TruthisaPeskyThing

    Dan,
    Great question. Essentially, the oil industry is not given tax breaks, but rather operates under the same accounting rules under which all industries operate. The tax accounting procedures are not suspended for the fossil fuel industry. Naturally, in the complex world, some reasonable people disagree on some infrequently-encountered accounting rules, but the overall accounting approach is very logical and seldom controversial.
    Most so-called subsidies to the fossil industry are myths. In fact, the fossil fuel industry is often targeted as a source of special revenue to the government. Property tax rates on fossil fuel plants are often higher than taxes on other industrial plants.
    To truly appreciate the subsidies given to "renewable energy," one should look at the per-BTU subsidy given to various sources of energy. On a BTU basis, even if one is generous in including subsidies to fossil fuel, "renewable" energy get subsidies something like 100 times the subsidies to fossil fuels. For example, in addition to property tax exemption and other subsidies, wind generation gets a 1.5 cents per kwh direct subsidy -- and that is more than the total operating cost of coal-fired electric generation. These kinds of subsidies to renewables do not have a huge impact on the economy as low as renewables are a small portion of generation. However, when renewables get to 15 or 25% of total generation, then we start to have impacts.
    Also consider this: roads are paid for by taxes on fossil fuels. Imagine that you have a an electric vehicle that is powered by solar or wind energy. That vehicle is being subsidized by fossil fuels -- it is not paying for its share of the cost of the road.

  • Joe Blizzard

    I get your point, but when I see somebody shoveling my money out a window, I generally blame the guy doing the shoveling more than the folks down below picking it up. Doesn't mean I think they deserve it or aren't complicit to one degree or another, just gives me an idea of who to shoot first.

  • Joe Blizzard

    I often hear that a large part of the alleged subsidy is the taxpayer funded infrastructure, IE we have highways which support cars and trucks which supports the oil industry. There is something to it in regard to how it adds friction to a technology shift, but I don't find it a compelling argument because generally people choose the technology and the government gets on board afterwards, not the other way around, as much as some would like it to be otherwise.

  • Ike Evans

    I had this discussion with my brother the economist literally just three days ago. I asked him...

    "Am I the only guy out there who thinks Musk is the most overrated entrepreneur ever?"

    I'm glad to see that I am not.

  • John_Schilling

    Going through the article, I get $2.8 billion in subsidies for Solar City, $1.8 billion for Tesla, and $0.02 billion in subsidies for SpaceX. One of these things is not like the others, and describing it as "Tesla, Solar City, and SpaceX together..." seems a bit off.

    Also on the subject of deceptive phrasing, shouldn't an article that describes Musk as "America's #1 Crony Capitalist" - and presumably aspires to be more than just a hit-and-run smear job - make at least some effort at showing that there aren't any bigger crony capitalists out there? $4.9 billion is barely into Dirksenian "real money" territory, and I'm skeptical that it is really a record. Some context would be nice.

  • joe

    Even with the assumption that the legitimate tax deductions are a subsidy, the actual amount of subsidies for renewable energy on a killowatt basis is approx 1,000x the phantom subsidies of the oil and gas industry.

    As Pesky mentions above, on a Btu basis, it is 100x (though likely closer to 200x)

  • Peabody

    The public bearing the alleged "costs" of the externalities of global warming is a new one I hear as well.

  • Peabody

    But don't worry, if the US drops out of an agreement which could result in less subsidies for him, he will take the moral high ground and quit an advisory board because he wants to virtue signal about his care for the planet.

  • Dan Wendlick

    Well, when your business model is based on government regulations that force people to buy your product, changing the regs has an immediate effect on your business outlook. Isn't the estimate still that Tesla makes more selling emissions credits than they do selling cars?

  • Craig Marks

    Musk does more than benefit from subsidies; he tries to create them. He spends millions of dollars on California's top lobbyists. http://www.sacbee.com/opinion/opn-columns-blogs/dan-morain/article95492597.html

  • TruthisaPeskyThing

    If we were taxing Grandma's interest earnings to build the highways, there might be some legitimacy to the infrastructure argument, but the highway infrastructure is built with taxes on fossil fuels. As the gasoline pump, you pay taxes used to build the roads. Whenever someone uses the roads without a gasoline-motorized engine, that person is being subsidized by the petroleum industry -- whether that person is using a bicycle or an electric car using non-petroleum energy.

  • JTW

    SpaceX is pretty innovative. Tesla less so but still a step in the right direction (they did make an electric car at last that has enough range for your average commuter, even if it's out of the price range for the average commuter).
    Hyperloop is pure fantasy though, and solar panels are only profitable because of government subsidies on not just their manufacture but installation and maintenance as well.

  • JTW

    Tesla is profitable only because of subsidies...

  • glenn.griffin3

    One data point:Tesla's 1.8b$ in subsidies, when taken together with 4.9b$ in total revenues and -0.3b$ loss (the company has NEVER turned a profit). I would say that Tesla, at least, is a company built on subsides.

    If you have a candidate for a bigger crony capitalist, please submit your own data.

  • glenn.griffin3

    Tesla isn't even profitable with the subsidies. $330mm LOSS in 2016.

  • glenn.griffin3

    Actually, I did the research. According to Washington Post*, only Boeing ($13.9b), Intel ($5.6b) and Alcoa ($5.3b) received more subsidies than Elon Musk. Considering that these other companies don't bill themselves as "entrepreneurs" and have actually turned a profit, I think the title is ballpark accurate.

    *https://www.washingtonpost.com/blogs/govbeat/wp/2015/03/17/the-united-states-of-subsidies-the-biggest-corporate-winners-in-each-state/?utm_term=.4f5102eff5f8

    **this only counts state and local subsidies. Adding federal subsidies may push Musk farther down the list than #4.

  • Bruce Zeuli

    The think I find most distressing is how Tesla is treated as a model company that more should emulate. This speaks more to people's gullibility and politicians pandering. Wouldn't things be great if we had 1,000 or 10,000 more with the same business model.
    1) Sell your product at a loss to wealthy connected people (about $19,000 loss per vehicle currently).
    2) Collect taxpayer subsidies and Zero Emissions Credits paid for by people who can't afford your product (added to much less expensive cars).
    3) Bow to all your adoring fans.

  • herdgadfly

    . . . and the reason we need expensive electric cars is. . .. ??? We got no electric vehicle infrastructure, people and when we finally overcome that problem, all the Kings horses and all the King's men will never recover the investment.

  • 好好学习,天天向上

  • DanSmith

    Thanks for the explanation. Not that it is going to convert the wind/solar fanatics. Very helpful for future discussions

  • johnmoore

    I find this to be a fascinating and difficult topic. Musk is a genius, and has done amazing good in his innovations with Space-X and Tesla.

    But, he is also sucking down tons of our money in subsidies.

    There is the argument, made below, that he'd be a fool not to take those subsidies, and that is correct. People in business have to play by the rules set out for them, except for clear moral exceptions.

    But, if he advocates those subsidies out of greed, then he is a rent seeker, and a spectacular one.

    His pullout from Trump's advisory council over the Paris fraud is instructive. Does Musk, a smart physicist, really believe that this agreement was important? Sure, a smart physicist can buy into global warming one way or the other. But, does he not also notice that China and India are left to go their own way until 2030? Does he believe that US participation will make any significant difference?

    Hard to say.

    But, it's our fault (as Americans) that these subsidies exist.

  • Joshua

    It's a paper fortune though. If Tesla goes bust, he's a pauper.

  • GoneWithTheWind

    Capitalism is a natural human interaction that has been going on since we came down from the trees. Capitalism exists under all political systems including socialism. Capitalism is simply humans exercising their freedom to sell something they own or to sell their labor. That it can be perverted is neither news or surprising.

  • Brandon Lee

    Too bad he's probably gonna get rich off it.

  • Signal

    Joe Blizzard You're right here. Cronyism requires the shovelling. Picking up the spoils isn't the fault of the recipient unless they have taken steps to create the shovelling.

    For Coyote to call Musk a crony capitalism requires argument for his gaming the system, not just enjoying the spoils.