Why Tesla is not a capitalist success story
To say the Tesla S is cool is a serious understatement. It's fast — the 2013 edition can go from 0 to 60 in 5.4 seconds. Its huge battery pack, situated low in the car's body, provides unparalleled cornering. It has the largest and most functional computer screen of any car on the road. And this all pales in comparison to its beauty. The Tesla S just has that look — the one you can't resist turning around to see one last time. Just ask Motor Trend. They made it their car of the year for 2013, writing, "Proof positive that America can still make (great) things."
Tesla (the company) appears to be the quintessential American capitalist success story. In a short time, it has garnered eight percent of the total "luxury" car market in North America. As of Dec. 31, 2013, Tesla had created nearly 6,000 jobs. Tesla's cars are exported abroad. And it's a feel good story, given that this 100 percent electric vehicle (EV) seems as "green" as one could ask.
Yet, for all the hype surrounding the company and the stunning looks of the Tesla S, there is another side to the Tesla story that should worry any free-market economist and, perhaps, Americans in general.
Let's start with subsidies. In 2009, a $465 million loan from the Department of Energy (DoE) potentially saved the company from bankruptcy. Tesla repaid the loan ahead of schedule, but in the end, we taxpayers received just 2.6 percent interest on the loan. This is a paltry reward given the potential risk of the loan. (Remember Solyndra?) Tesla may seem like an economic success — but it required massive aid from the government just to avoid death.
And the subsidies reach far deeper. Uncle Sam lavishes electric car buyers with a tax credit of up to $7,500 for every electric vehicle made in America. Additionally, 23 states provide their own tax credits to buyers of the Tesla S.
Tesla also benefits from carbon tax credits in its largest market, California. Carbon creators are forced to purchase zero emission vehicle (ZEV) credits from companies like Tesla that exclusively produce ZEVs. California has mandated that 15 percent of all vehicles sold in the state must be ZEVs. We can argue how meaningful the environmental benefits of this program are — but it inarguably is also a redistribution of income from most other car manufactures to Tesla and other companies producing ZEVs.
This income transfer is not trivial. For 2013, the California carbon tax credit was worth $129.7 million to Tesla. Let's be generous and divvy that up not just among the Teslas sold in California, but among the approximately 20,000 Teslas sold in the entire U.S. that year. That carbon tax credit provided Tesla $6,485 for each vehicle. Now, if we add in the federal subsidy, taxpayers subsidized each Tesla sold in 2013 to the tune of 20 percent of its base price. That doesn't even count the state subsidies.
Tesla unabashedly pushes buyers to seek all possible electric vehicle subsidies, and encourages consumers to contact their elected representatives to create even more. It's easy to see why.
The Tesla S may be very green. It gets my heart racing every time I see one, and adds beauty to American roads. But make no mistake: The Tesla car company is not the capitalist success story it's made out to be.