Los Angeles Times Stirs Debate: Elon Musk’s Use of Subsidies at Tesla, SpaceX, and SolarCity
In the week and a half since Jerry Hirsch of the Los Angeles Times’ broke a story on billionaire entrepreneur Elon Musk’s use of subsidies as key to his business’ plans, the story has gone viral. The $4.9 billion in government subsidies (much of the data sourced from our Subsidy Tracker database) covers three companies affiliated with Musk: SolarCity (ranked 28th in our list of top recipients), Space X, and Tesla Motors (ranked 22nd).
For example, the story got picked up by Tribune-affiliated papers, including The Chicago Tribune, The Orlando Sentinel, and The Hartford Courant. Even cable news outlets, blogs like The Motley Fool, and radio commentators, including Rush Limbaugh, discussed the Times’ findings. Over 500 comments were posted on the Times’ website and the paper printed a selection of Letters to the Editor.
At first, Musk did not respond to the Times’ request for comment but he later called into CNBC to respond. Musk argued:
- It was misleading to sum up multiple years of subsidies (past and future) in one figure. By doing so, he claimed it made it appear as if his companies were just receiving one big check.
- It was unfair to not also discuss the level of subsidization for fossil fuels. Subsidies to green companies are justified, Musk argued, because the oil and gas industries are so heavily subsidized.
- $1.3 billion in subsidies for Tesla’s “Gigafactory” were warranted given the projected economic impact.
Here’s our retort to Musk:
Accounting for Multiple Years of Subsidies
The editor of the Times responded to CNBC arguing that the outlet was reporting on the “depth and breadth” of subsidies awarded to these companies and that it was up to the public to decide whether the size and scope of subsidization is right. We agree. Specifically, the editor pointed out that Hirsch itemized each subsidy in his calculation. We don’t think the Times misled readers by reporting the total figure awarded to companies affiliated with Musk.
Good Jobs First weighed in on multiple-year subsidies in our recent comments to the Government Accountability Standards Board (GASB) and on aerospace subsidies (read Boeing) in Washington State. As we argued for robust GASB standards (see page 4-5), governments ought to account for the full cost of current and future years of subsidies. Otherwise they ignore “budget icebergs” in years ahead.
Michigan now provides a good example why this is critical. There, a subsidy program canceled in 2011 is still having a huge budgetary impact, as $9.4 billion in past-awarded tax credits play out (an increase of nearly $3 billion above previous estimates). In Washington, we pointed out that the $8.7 billion subsidy package, primarily benefitting Space X competitor Boeing, is the largest ever awarded to a company from a state, and it will cost the Evergreen State revenue through 2040.
Musk Is Correct About Subsidies to Oil and Gas
Musk makes an excellent point that the size and scope of subsidies to green companies are much smaller in absolute terms than subsidies to big oil. Although companies like Iberdrola (a Spanish company investing in wind energy) appear in our list of top recipients of subsidies, the list is also dominated by fossil fuels giants like Sempra Energy (natural gas), Royal Dutch Shell (oil), Cheniere Energy (natural gas), Valero (oil and gas), and Exxon Mobil (oil and gas).
Musk cites a recent IMF study which found that the fossil fuel industry costs governments around the world some $5.4 trillion in 2015. A recent investigation by The Guardian also profiled subsidies to oil and gas utilizing our Subsidy Tracker database and connected many of these subsidies to political campaign contributions. A single subsidy package Pennsylvania awarded to Shell for its ethane cracker facility will cost the state some $1.7 billion in subsidies, more than Tesla’s Gigafactory facility in Nevada.
While subsidies to big oil are huge, one huge giveaway does not justify another. The growth of companies extracting ever-larger taxpayer subsidies, especially through megadeals, while states embrace austerity is a growing worry. States are making cuts to transportation, education, and workforce development—investments that benefit all employers. Moreover, few states have implemented early childhood education programs that carry a high rate of return without picking winners and losers in the economy. These cuts undermine opportunity for working families and fuel inequality.
Good Jobs First and groups in five Western states spoke out when Tesla staged a public auction for its “Gigafactory” last year. We stand by our analyses: the deal became far more expensive that originally forecast, Musk’s whipsawing of states against each other was pure Old Economy, the project appears to carry a very high cost-per-job created, and taxpayers are the losers in interstate bidding wars that race to the bottom.
Musk Admits That Business Basics, Not Subsidies, Drive Site Selection
Finally, we note that Musk confirmed key arguments about subsidies that Good Jobs First frequently makes.
When asked directly by the CNBC reporter about whether the Gigafactory would have been built “but-for” subsidies to the company, Musk admitted that it would have been built regardless of subsidies from any state. Musk stated the following: “None of the incentives are necessary, they are all helpful. These things seem to be characterized as either absolutely necessary or absolutely unnecessary: both of those positions are false. What the incentives do is they are catalysts. They improve the rate at which a certain thing happens. And the reason these incentives are put in place is because the voters want a particular thing to happen and they want it to happen faster than it might otherwise occur.”
Unfortunately, it’s impossible to prove whether the public actually sees things this way: Nevada taxpayers never actually got to vote on the deal, which was rushed through a special two-day legislative session. Too few polls with well-worded questions repeated over time have been conducted to really gauge what voters think about subsidy packages. Los Angeles Times readers’ reactions are mixed. Californians’ reaction may also differ from Nevadans: Golden State residents could benefit from Tesla jobs just across the state line without footing the subsidy bill.
On the Gigafactory project, Musk states that the value of the subsidies amounts to less than 1 percent of the projected economic output of that factory. This confirms our oft-repeated point that other factors matter a great deal more to businesses than subsidies. States should focus most of their energies (and economic development dollars) on those other major factors that make economies thrive for all businesses such as a well-educated workforce and transportation systems that move goods and people efficiently.
A laurel to the Los Angeles Times for stirring up this debate! And a tip of the hat as well to Elon Musk for his “but for” candor and for even suggesting voters should have a say on subsidies. How about a state law requiring voter approval of any subsidy package over $50 million?