EDITOR’S NOTE (Nick Stamatakis). Those of us familiar with European Union policies would call the phenomenon of state subsidies “statism”, another form of “socialism lite”. The government supplies subsidies to certain businesses they want -for whatever ideological reason (sometimes it can be simply “bribes” to politicians) in order to give impetus to technologies not yet developed in mass production, and therefore very expensive. Elon Musk, took full advantage of another form of subsidies, the so-called “Renewable Energy Credits” (RECs) to enrich himself and help Tesla produce not-so-energy-efficient electric cars… Elon Musk is now the wealthiest single individual on Earth with a net worth of over $185 Billion! It’s amazing to me that such a “prophet” of free-market capitalism would end up using the government’s corrupt policies for his own benefit. One certainly hopes that his overall plans for technological advancement would benefit humanity… Besides his ambitious space program, we reported recently on his $100 million prize for efficient technology to remove carbon from the atmosphere… And his pushback against “Big Tech” censorship…
By Tim Benson (realclearenergy.com)
Government assistance was once reserved for the needy. Today, the government assists the incredibly affluent, a word that inadequately describes a man like Elon Musk, who is now the wealthiest single individual in the world. His current net worth of approximately $185 billion exceeds that of Amazon’s Jeff Bezos – who differs from Musk in that he makes his money selling stuff that people want to buy.
The Wall Street Journal recently highlighted how members of Congress and industry stakeholders are up in arms over SpaceX’s recent request for nearly $1 billion in federal subsidies. But beyond general subsidies, Musk also amasses significant sums each year from government mandates that effectively coerce his competitors into buying what he’s selling.
What they’re buying isn’t electric cars, as many people mistakenly believe, but rather government credits others amassed for building them.
Mr. Musk sells these renewable energy credits (RECs) to other car companies that have little choice but to buy the credits or build electric cars themselves to comply with government mandates pertaining to “zero emissions” vehicles, a standard that only electric vehicles meet. Even though they are only “zero emissions” if one doesn’t consider the emissions produced during their manufacture, or via the utility plants that power these energy hogs.
Tesla’s electric cars are especially hoggy since they are specifically built to deliver high performance, which requires larger, more powerful electric batteries (1,000 pounds of them per car) and motors that consume more energy. The energy they hog is largely produced by utilities that emit plenty of carbon dioxide.
But never mind that.
But they also have to comply with the “zero emissions” mandates — as in states like California and most recently, Colorado — which require every car company that wishes to sell any cars in those states to manufacture a certain number of electric cars in order to be allowed to sell other-than-electric cars.
What to do?
It is very expensive to design and make electric cars that can’t be sold without losing money on each one, including the money lost on research and development, tooling, and other expenses associated with designing and building any car.
It is cheaper — though still expensive — for these car companies to buy credits for not having built their electric cars by handing over money to Mr. Musk, who produces nothing other than electric cars.
The cars he builds “offset” the ones the others don’t.
This credit system has made Mr. Musk a very affluent man at the expense of his competitors. They government effectively forces them to either buy his credits and not invest that money in the design and manufacture of their non-electric cars, or hemorrhage even more money designing and building electric cars for which there isn’t a market. Or, at least, one which cannot be sold at a profit for a price the market will bear.
The least expensive electric cars on the market are the Nissan Leaf and the Chevy Bolt. They both list for more than $30,000 or about twice the price of an otherwise similar compact-sized non-electric economy car – while only going about half as far on a charge versus a tank and needing at least five times as long to recharge than the non-electric takes to refuel.
Not surprisingly, they don’t sell, unless steeply discounted to give-away prices.
It’s just less hassle to hand money over to Mr. Musk. This transfers money from legitimate (because demand-based) businesses to rent-seeking businesses like Tesla.
And business is very good.
The more electric cars Tesla produces, the more credits it can sell for making them. Over just three years (2015-2017) Tesla sold other automakers 279,725 credits.
According to its second quarter 2020 earnings report, “sales” of credits amounted $428 million, or four times Tesla’s $104 million net profit for that quarter. This “profitability” led to Tesla being listed on the S&P 500 even though revenue from selling Teslas declined by 4 percent over the prior 12-month period.
MSNBC quoted Tesla CFO Zachary Kirkhorn last summer predicting that Tesla expected its regulatory credit revenue to double in 2020 relative to 2019.
And indeed it did.
“We have sold these credits, and will continue to sell future credits, to automotive companies and other regulated entities who can use the credits to comply with emission standards and other regulatory requirements,” said Tesla.
Mr. Musk gets richer and makes his rivals weaker by making them pay him to make cars that can’t be sold without losing money on them, enabling him to make more money by building them irrespective of the lack of market demand for them.
Tesla’s stock value has gone up again but, again, it is not fully a function of the profitability of his product. It also involves the increased power his government credits operation. With a new administration in power that has promised it will impose new and more aggressive mandates that will increase the pressure on Mr. Musk’s competition to buy even more credits from him.
Only in America.
Or rather, only in what America has become.
Tim Benson is a policy analyst for the Heartland Institute and host of the Heartland Institute podcast III Literacy: Books with Benson.