There’s a good chance that many of us have heard of “crony capitalism.’” There’s about an equal chance that some of us have read about people involved in such relationships without paying much attention to the details. That is the purpose of this column: to provide an almost ultimate example of crony capitalism. The government participates in GDP (Gross Domestic Product) mostly by regulation and taxation and to some degree by providing capital. And it is at this intersection where “crony capitalism” occurs by design and default.
One crony is Elon Reeve Musk, 45 years of age, noted as very wealthy with an estimated net worth of $12.7 billion. Born in South Africa, he is described as a Canadian-American business magnate, engineer and inventor. His goals are said to include the reduction of global warming through sustainable energy and reducing the risk of human extinction by establishing a human colony on Mars.
Musk is CEO and CTO (Chief Technology Officer) of Hawthorne, CA based SpaceX, the CEO and product architect of Palo Alto, CA based Tesla Motors with a production factory in Fremont, CA and CEO of SolarCity, headquartered in San Mateo, CA. Cousins Lyndon and Peter Rive actively manage SolarCity. Mr. Musk is also Co-chair of OpenAl, Co-founder of Zip2 and founder of X.com that merged with PayPal. In addition to the foregoing activities, he envisions a high speed transportation system known as Hyperloop and has proposed a supersonic jet airplane with electric fan propulsion: the Musk electricjet.
Sounds like this Musk guy must be a genius; yep, he sure is. Here’s a tip: SpaceX has a contract with NASA for 12 flights to the ISS (International Space Station) with $1.6 billion government funding in advance. The Tesla factory makes only electric cars; those are the ones with the federal and state consumer tax rebates, fuel mileage credits and HOV permits (Hybrid vehicles).
Tesla is a leader in “driverless cars”, an emerging technology of most auto companies. Mr. Musk speaks of building battery-powered pick-ups and big rig (electric) trucks for highway hauling. Although his early model sedans have been priced at around $100,000, models are selling currently for around $85,000. A $35,000 model is under development and behind schedule. Profit, production and most other specified targets are missed routinely. Losses at Tesla over the past five years have amounted to just over $1.9 Billion.
SolarCity is a Musk company that commands about 32% of the solar roof panel industry. Although the company was merged into Tesla Motors in June of this year, the most recent quarter showed sales revenue at $185.8 million and losses of $250.3 million. Through 2013, SolarCity had received $244 million in federal grants and incentives. Recent reports suggest that the acquisition of SolarCity by Tesla was a life-saving bailout.
Let’s tie all these enterprises and aspirations together. Solar panels installed on residential roofs feature “net metering.” Of the approximately 900,000 homes with solar panels, most generate more electricity than is needed and sell the excess to the power company in the 44 states where net metering prevails. Excess consumer-developed power is sold to the utility at the high cost of solar generation or about 17? per kilowatt hour. The utility generates power from its sources at a cost of about 5? meaning that the power company and non-solar users are subsidizing the homeowners with solar power.
Tesla produces only electric cars so the company earns credits known as “state zero emission vehicle credits” that can be sold to other car makers who don’t reach fuel efficiency standards. Uncle Sam provides up to $7,500 rebate for every electric car buyer. When Tesla built a $5 billion battery factory in Nevada, the company was recipient of $1 billion against state and property taxes, discounts on electricity and 30% tax credit for solar generation. In 2014, New York handed Musk a $750,000 check for building a SolarCity plant.
Each Musk company is dependent on creative government handouts in various forms. These companies don’t need to worry about making a profit. The creativity of government grants and tax breaks dovetails perfectly with the creativity of recipients of government capital infusions. Our taxes are working to create power politicians and business billionaires, giving us one of the best examples of crony capitalism to date.
Dick Baynton