How Elon Musk funded his business empire with $4.9bn in government subsidies

31 May 2015 | Author: | No comments yet »

How Elon Musk is educating his children.

For the second time in two years, Tesla Motors Inc. is walking away in defeat from Texas after failing to convince lawmakers that it should be allowed to sell its $100,000 electric cars in the state.In a world where wealthy urbanites fill out comprehensive private school applications for kindergarteners, and academic pedigree is sold as the main pathway to a financially secure future, getting your kids into the same elementary school as Elon Musk’s children would be pretty exciting.

Especially in politics, any relationship between the effect of policy, the goal of policy and the stated goal is often incidental to the point of randomness. Tesla had backed two bills in the legislature that would have allowed it to bypass auto dealers and sell its cars directly to consumers in the second-largest U.S. car market.

Which naturally brings us to a new biography of Elon Musk, whose entrepreneurial energy is a marvel; the world would be better off if there were more like him, even if a “nonstop horrible” childhood was a precursor to his adult achievements. That said, the “change the world” stuff, let alone the “save humanity” stuff, that fills Ashlee Vance’s admired “Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future” is a tad overdone.

But with no known website or application process, the school is something of a mystery to parents who’d love to enroll their children. “I heard about it through a friend of a friend, actually from several friends of mine, who would love for her kids to go to the school,” Christina Simon, the author of a book and a blog about the Los Angeles private school scene, tells Quartz. “And then another friend said she wanted her kids to go there; I got probably 20 or so reader e-mails, they want their kids to go—’How can I get an application?’—and I don’t have the answers.” Simon tells Quartz that she first heard of the school back in September. This year, Georgia, Maryland and New Jersey enacted laws allowing for direct sales of Tesla vehicles and Tesla is trying to get prohibitions lifted in Arizona, Connecticut, Michigan and West Virginia. You would show them the engine, and ask how they would take it apart. “Then a very important thing happens, which is that the relevance of the tools becomes apparent,” he says in the interview. These items sell not because the moment is ripe to transition the world economy to solar but as vanity trinkets for the rich that even the rich wouldn’t buy without a large helping of taxpayer money. The Connecticut legislature is deliberating lifting its ban. “It’s kind of a joke to think that somebody’s going to come in here and ride in on a horse that doesn’t use gasoline and change the world,” said Red McCombs, the 87-year-old billionaire founder of his namesake auto dealership in San Antonio. “They’re going to have to play by the same rules that the competition plays by.” Auto dealers sell $81.4 billion worth of automobiles in Texas, second only to California, according to figures from the Virginia-based National Automobile Dealers Association.

Musk, who chose border-town Brownsville as the launch site for his SpaceX exploration venture last year, has said he would like to consider Texas for future investments. Two years ago, he floated the idea of manufacturing an electric pickup, a modern update of the emblematic Texas transport. “When we do a pickup, it would be logical that we would do it in Texas,” O’Connell said. “It’s also logical to ask why would we invest major amounts of money in a state where we can’t even do business.” In January, two days after the start of the legislative session, Musk made a whirlwind tour through Austin. Per the new Musk biography from author Ashlee Vance, Musk’s childhood in South Africa was a hard slog—he was a victim of bullies, and his lack of interest in rote learning led him to get poor grades in some subjects even as he excelled in math, physics and computer science.

He then swung by the Capitol lawn to sign autographs for a crowd of Tesla fans, some wearing “Don’t Mess With Tesla” t-shirts as they stood by their Model S cars. Tesla hired about 20 lobbyists and spent more than $150,000 on campaign contributions between October and December of last year, according to state records.

Asked in 2011 how his family produced so many entrepreneurs—Musk’s brother and cousins have worked with him at startups—Musk said, “I had a terrible upbringing. Tesla has concentrated its presence in wealthy urban areas, such as Austin or Dallas, where it has “galleries” in malls where customers can learn about the car, though employees are forbidden from discussing prices or offering test drives. Musk hired to explore “what types of tax credits and rebates Tesla might be able to drum up around its electric vehicles,” which eventually would include a $465 million government-backed loan.

As in other places, auto dealers sponsor Little League teams and Girl Scout troops, spread advertising revenue to newspapers and host victory celebrations for politicians. Their father reports that they “really love going to school” so much that “they actually think vacations are too long; they want to go back to school.” And that’s a common enough sentiment for a Musk. And how Tesla came by its ex-Toyota factory in California “for free,” via a “string of fortunate turns” that allowed Tesla to float its IPO a few weeks later, is just a thing that happens in Mr. Musk has yet to show that Tesla’s stock market value (currently $32 billion) is anything but a modest fraction of the discounted value of its expected future subsidies.

Somehow we doubt he intends to make it easy for politicians to whip away the $7,500 tax credit just when somebody besides the rich can benefit from it—in which case the annual gift from taxpayers will quickly mount to several billion dollars each year. Musk owes the taxpayer, suggested the wunderkind could be a “bit more grateful, a bit more humble.” Unmentioned was the shaky underpinning of this largess. Even today’s politicized climate modeling allows the possibility that climate sensitivity to carbon dioxide is far less than would justify incurring major expense to change the energy infrastructure of the world (and you certainly wouldn’t begin with luxury cars). Any government is going to be a buyer of services; it’s only sensible that Washington buy more of its space services from competitive private contractors rather than try to produce them in-house by NASA.

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