Tesla (NASDAQ:TSLA) is famous for building stylish, zero-emission electric cars in small numbers – by now maybe 3,000 in a good month against global auto production of over 6 million a month. Loaded, the Model S stickers for over $100,000. A cool, “green” car for wealthy people.
And it’s not necessarily a reliable set of wheels. No one really expects it to be. The company is still learning the ropes. Designing a car is the easy part. Making and selling them in large quantities for a profit is much harder – an impossible feat so far for Tesla. And making cars where every little thing holds up for years while in daily use, the Holy Grail for automakers?
Edmunds has been testing a loaded $105,000 Model S for over 30,000 miles. During that time, the car developed a long list of major and minor problems. Among them, the “drive unit” – the motor in regular cars – had to be replaced not once, but twice. The most expensive part of the car, the battery, had to be replaced as well. And there were some “unresolved” mystery problems, like windows that lowered automatically.
Consumer Reports – which had fawned over the car previously – is having second thoughts after driving it for 16,000 miles. It had “more than its share of problems,” the statement said, according to Reuters. Among them: “the center screen went blank, eliminating access to just about every function of the car.”
And when a stolen Model S crashed during a chase, it split into two and ejected the driver. One half of the car burst into flames. This just isn’t supposed to happen with modern cars.
But hey, give Tesla a break. It hasn’t had a chance yet to go search for the Holy Grail of auto manufacturing. However, there is one area beyond manipulating its stock price into the stratosphere where Tesla, which has been hemorrhaging cash since 2003, excels: sucking money out of investors and taxpayers.
Buyers get the federal electric-car tax credit of $7,500. In California, they get an additional $2,500 tax rebate (until funds are exhausted), for a total of $10,000, available only for buyers wealthy enough to buy a Tesla. Other states have similar programs. These taxpayer funds, in effect, subsidize the company. Without them, Tesla would have to cut its prices to compete with gasoline powered luxury cars – and it would hemorrhage even more cash.
If Tesla ever manages to sell 50,000 cars per year in the US, the federal subsidy alone would amount to $375 million per year. Plus state subsidies! And if its wildest dreams come true and it can sell 100,000 vehicles per year in the US – still puny, in our 16-million vehicle market – state and federal subsidies would approach a cool $1 billion per year.
Tesla has benefited from other welfare programs as well, including a loan of $465 million in 2010 from the DOE, which Tesla paid back in May 2013 after its hype machine attracted $1 billion in a stock and debt offering.
Now it’s hunting for more taxpayer subsidies, bigger ones, all over the US, for its “gigafactory” that is supposed to make batteries for Tesla’s less expensive future model. Tesla claims that the $5 billion plant will employ 6,500 people. And the California government – along with the governments of Nevada, Arizona, New Mexico, and Texas – is pulling out its wallet: The new tax break could reach $500 million, or $77,000 per job.
Not that Tesla is the only corporate welfare queen currently trying to stick it to Californian taxpayers. The LA Times reported:
With almost no debate, the state Assembly on Monday unanimously approved a nearly half-a-billion dollar potential tax credit for Northrop Grumman Corp. (NYSE:NOC) should it win a new Air Force bomber contract and build the aircraft in California.
This is a sister bill to a similar one for Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA), which are bidding the same $55-billion endlessly ballooning bomber contract. Gov. Brown signed that bill in July. However, no one has yet explained to Americans in California or elsewhere why the heck we need to blow $55 billion – and likely much more – on another bomber…
Be that as it may, for that $500 million in tax incentives spread over 15 years, Northrop promised to create 1,100 jobs in California, at a cost to California taxpayers of $454,000 per job. By comparison, Tesla is outright cheap.
Very ironically for a company that hypes its “green” credentials and products – coal-powered cars? – at every opportunity, Tesla is also demanding to be exempted from the California Environmental Quality Act, known as CEQA. The statute requires state and local government agencies to review development projects, and if they find threats to the environment, suggest ways to mitigate or eliminate any potential damage. It was put in place by Governor Ronald Reagan in 1970!
“It would help them speed the process,” explained State Senator Ted Gaines, a Republican, after he’d met with Tesla executives, according to the LA Times. He and Senate President Pro Tem Darrell Steinberg, a Democrat, coauthored the Tesla incentive bill. And so the office of Gov. Jerry Brown is feverishly negotiating with Tesla over waivers for big portions of the CEQA, Gaines said.
Tesla wants to skip or limit the strict pre-construction environmental reviews of its plans so that it can “start construction and mitigate any potential damage later,” the LA Times reported, based on “state officials who said they were familiar with discussions but not authorized to speak about them.” The laundry list also includes a limitation on lawsuits that might slow construction.
Lawmakers and the Brown administration are rushing to get this thing wrapped up before the end of the legislative session in August, Gaines said.
“Timing for the gigafactory is very important,” explained Tesla spokesman Simon Sproule. “So all five states in the running for the gigafactory need to demonstrate, among other factors, that they can help us deliver the factory on time.”
Tesla cracks the whip. California’s harried taxpayers jump through hoops. Environmentalists, the very people who’ve raved about Tesla, the builder of “green” cars, are unceremoniously shoved aside. And people clamoring for fairness – like David Pettit, an environmental lawyer, who lamented the two systems of law, “one for the super-rich, and one for the developer doing multifamily housing” – will be made short shrift of. No one is allowed to get in the way of Tesla.
Despite puny sales and big losses, Tesla’s market capitalization is $32 billion. GM (NYSE:GM), whose sales last quarter were 64 times higher than Tesla’s, is valued at $54 billion. But there is a reason: no one excels at hype like Tesla and the Wall Street machine behind it.
The game has been honed to perfection. Everyone is playing along. And it performs miracles. Or it did. Because just now, it inexplicably conked out. Read… The Wall Street Hype Machine Suddenly Breaks Down.