DICK BAYNTON: A New Kind of Crony Capitalism

Dick Baynton

Today’s column is about companies named ‘Tesla’, ‘Solar City’, ‘SpaceX’, PayPal,  X.com, Zip2, OpenAI (Artificial Intelligence), The Boring Company (pneumatic tube travel), Neuralink (integrating the human mind with AI) and a man named Elon Musk who leads all these named companies.

He was born in Pretoria, South Africa on June 28th, 1971 and became a U.S. citizen in 2002. He attended Queen’s University in Kingston, Ontario, Canada and transferred to the University of Pennsylvania where he accumulated two bachelor’s degrees, one from their school of Arts and Sciences (BS, physics) and another (BS, economics) from their Wharton School of Business.  His net worth has been reported to be somewhere between $14 and $20 billion.

Elon Musk is a visionary having founded SpaceX in May of 2002 with a 2006 agreement to design and build and launch spacecraft for NASA at a cost of billions of dollars. The bet was successful considering that in 2017 the company launched 18 successful Falcon (9) flights and is the largest private producer of rocket engines in the world (Merlin 1D). His visions for space exploration, speedy travel, artificial intelligence and energy savings are cutting edge.

Tesla, Inc. founded in 2003 and based in Palo Alto, CA is a tech conglomerate with Tesla electric vehicles named for Nikola Tesla, the Serbian/American scientist who is best known for his contributions to design and development of the AC (alternating current) electrical supply & distribution systems throughout the world. The company is seen by its leader as a technology company and automaker. Products bearing the Tesla brand include electric vehicles, energy storage, solar panels and lithium-ion batteries.

Tesla stock value took a precipitous decline in 2017 that was partially fed by the several deaths that had been reported with self-driving Tesla vehicles. Other complicating problems relate to company actual production that fell short of forecast output and financial viability. Still another problem arose in late March of this year when the company announced a recall of 123,000 Model ‘S’ sedans due to bolt corrosion that could lead to power-steering failure. Moody’s Investor’s Services lowered its ratings of Tesla’s debt (bonds) from B2 to B3 (considered junk level).

The Tesla Model ‘3’ sedans strategy is to break into the ‘middle’ market of $30,000 to $35,000 sedans. While expectations were that production would reach 5,000 weekly, only 800 have actually materialized in 1st Q 2018. Lack of sales revenue means cash shortages for funding operations as plans are laid for a Chinese factory.

Another bad omen for Tesla was the industry report that 67% of new vehicle sales in April of this year were pickups and SUV’s meaning that sedan demand is severely reduced. The company’s debt has swollen to $10 billion mostly because of the acquisition of Solar City in 2016 for $2.6 billion; Solar City lost $800 million in 2016 and was $3 billion in debt. There has been a 38% decline in megawatts of solar panels deployed in 2017.

We must never forget the failures of companies like Solyndra who filed bankruptcy in 2012 putting 1,100 employees out of work and leaving taxpayers with a $535 million bill. There is a long list of other solar panel producers and battery makers who folded leaving billions of dollars of debt for taxpayers during the Obama years.

New York State has built a $750 million solar panel factory in the Buffalo area and leased it to Musk’s ‘Solar City’, (now component of his Tesla, Inc. automobile production firm) for $1 a year and savings of $260 million in taxes for the company. Nevada has provided $1.3 billion for a huge battery factory in Reno.  A local Texas jurisdiction handed out $15 million for SpaceX activities.

Tesla and SpaceX started with $4.9 billion from federal government in 2006 and have received $497.5 million direct grants from the U. S. Treasury. Billions of dollars have been handed out by federal government to consumers who installed solar panels and purchasers of electric-powered vehicles. The company currently has $6.2 billion outstanding debt from VIE’s (variable interest entities).

Elon Musk’s genius at creating advanced projects must be tempered by government’s attention to details of performance to assure that ‘Crony capitalism’ is justifiable when taxpayers are rewarded with reasonable returns on their investments.

Dick Baynton


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