Tech entrepreneur Elon Musk is not subtle about his business strategy: follow the government money.
That’s the conclusion, at least, of a recent article in the Los Angeles Times investigating how the businessman of SolarCity, Tesla, and SpaceX fame has built his multibillion-dollar fortune through companies that have benefited from an estimated $4.9 billion in government subsidies.
Politicians love latching on to the SolarCity, Tesla, and SpaceX brands, which promise to lead the way into a greener future. The result is dependence on a slew of government incentives, “including grants, tax breaks, factory construction, discounted loans and environmental credits,” reports the LA Times, adding that “it also includes tax credits and rebates to buyers of solar panels and electric cars.”
It’s gotten so egregious that states are actually competing to give Musk’s companies money, according to Musk biographer Ashlee Vance. “As his star has risen, every state wants a piece,” she said.
The story goes on to list some of the most egregious examples. The state of New York will spend $750 million to help SolarCity build a solar panel factory in Buffalo, which the company will lease for $1 a year and pay no property taxes on for a decade. And on the federal level, the Treasury Department has doled out almost half a billion dollars in direct grants to SolarCity.
Tesla, meanwhile, recently secured an agreement with Nevada to build a huge battery factory in Reno that includes $1.3 billion of incentives. In its home state of California, the company has made $517 million by selling environmental credits to other automakers, which must purchase credits from the state and federal government if they don’t sell enough zero-emission cars.
Hedge fund manager Mark Spiegel offers a devastating summary to the LA Times: “Government support is a theme of all three of these companies, and without it none of them would be around,” he said. Spiegel is betting that Tesla’s stock will fall, even though it has more than doubled over the last two years.
This raises a number of important questions for the taxpayer. How much longer will the public largesse continue? Will these companies survive without government subsidies? And even if they do, will the public ever recoup the value of the alleged benefits these green technologies will bring?
Readers who have been following SolarCity at Watchdog, however, shouldn’t be surprised by the LA Times’ findings. Watchdog reporter Tori Richards has written a series of stories over the past year that help fill in the picture of the Musk empire’s dependence on taxpayer funds.
In November of last year, for instance, she reported that SolarCity stock has soared since it went public, even though a company report admitted that business would be difficult to maintain without government help.
“If, for any reason, we are unable to finance solar energy systems through tax-advantaged structures … we may no longer be able to provide solar energy systems to new customers on an economically viable basis,” it said.
Even with the help of $244 million in federal grants , SolarCity posted losses of $55 million in 2013, and was running a $166 million deficit at the time. This year, it doesn’t appear much has changed as the government has continued to prop up the solar industry – most recently through an extra $32 million in funding from the Department of Energy.
More recently, Richards covered Congressional leaders’ calls to end the “potentially deceptive sales tactics” of companies like SolarCity that use a zero-down, 20-year lease business model. Congress’ attention was drawn to solar companies by consumer complaints that their solar panels weren’t bringing them their promised savings. As Richards reported, many customers, such as northern California resident Jeff Leeds, have found themselves locked into costly deals thanks to under-producing solar panels on top of their homes. Leeds later received a notice from his bank informing him that SolarCity had placed a lien on his home, which held him up from closing a loan to buy another house.
Richards’ coverage of SolarCity’s $750 million plant deal in Buffalo found that many of the details of the contract were confidential – even though public money is at stake and the contract was acquired through a Freedom of Information request. State officials claimed the redacted portions of the contract protected trade secrets.
For now, Musk’s companies have “a great strategy, but the government will cut you off one day,” warns Dan Dolev, an analyst at Jefferies Equity Research.
If and when those government funds dry up, don’t say we didn’t warn you.