Growing empire Ilona Mask feeds on billions of government subsidies

Ilon Musk, an entrepreneur from Los Angeles, built a multi-million dollar empire thanks to companies that make electric cars, sell solar panels and launch space rockets.

And he built them with the help of multi-billion state subsidies.
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Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, received a total of about $ 4.9 billion from state support, according to data compiled by The Times. And this figure characterizes all the activities of his empire - a public-private funding model, based on startups with unwarranted profitability.

"He definitely goes where government finances are," said Dan Dolev, an analyst at Jefferies Equity Research. “This is a great strategy, but someday the state will stop funding you.”

The estimated amount includes grants, tax breaks, factory construction assistance, forgiven loans, and air pollution quotas sold by Tesla. They also include tax deductions and refunds to customers of solar panels and electric vehicles.

The only question is whether these companies are moving towards self-sufficiency, according to Dolev, and whether they will be able to cut the cost of development before this recharge ends.

Tesla and SolarCity report another loss, but their shares are still on top. Only Mask’s share in firms costs more than $ 10 billion. SpaceX is not a public company, so its figures have not been disclosed. Musk and his investors enjoy the pleasant sides of government subsidies, and taxpayers bear the entire burden.

The public will be able to receive remuneration in the form of reduction of harmful emissions - but only if solar panels and electric vehicles break out into the mass market. For now, these are still niche products for the rich.

The main figures for the subsidies were published, but their full size was not disclosed as it was accumulated gradually, and through different levels in the government.

New York State will spend $ 750 million to build a solar panel factory for SolarCity in Buffalo. The San Mateo company in California will lease them for $ 1 per year. And taxes on this production will not pay a whole decade - despite the fact that the amount of taxes could be $ 260 million.

The government also provides grants and tax deductions to cover 30% of the cost of installing the panels. SolarCity reported on receiving direct grants in the amount of $ 497.5 million. But this is not the full amount of support.

According to reports, since 2006, SolarCity has installed its panels 217595 clients. Moreover, the average market value of such a system is $ 23,000. It can be calculated that these grants cost the government $ 1.5 billion.

The state of Nevada agreed to provide Tesla with tax breaks of $ 1.3 billion to build a giant factory near Reno. In addition, the company collected more than $ 517 million in payment for the sale of emission allowances to vehicle manufacturers. This system, existing in ten states, obliges automakers to acquire quotas if they sell insufficient vehicles with zero harmful emissions. Since all Tesla emission machines do not, the company simply trades in these loans.

SpaceX received about $ 20 million in economic development subsidies from the state of Texas for which it builds its space center there, and won tenders for contracts from NASA and the US Air Force totaling $ 5.5 billion.

Of course, any company engaged in solar panels or electric vehicles can receive such subsidies. But subsidies for Mask companies differ in gigantic size, if we compare them with the size of companies and the extent to which these companies depend on them.

“Government support is the main part of all three companies, without it they simply would not exist,” says Mark Spiegel, hedge fund manager at Stanphyl Capital Partners, who plays Tesla for lowering shares. Over the past two years, the company's shares rose by 157%.

According to Ashley Vance, author of the biography of “Ilon Musk: Tesla, SpaceX and The Quest for an Amazing Future,” Musk got so good at getting government subsidies that the states compete with each other for the right to give him money. "After the rise of his star, each state wants to fuck a piece of Ilona Mask."

And before that, he raised a good amount of $ 1.5 billion after the purchase by EBay Inc. PayPal payment company, in which Musk owned 11% of the shares. With the money from the sale, he founded SpaceX, invested and occupied leading positions in Tesla and Solar City. Now he is the CEO of Tesla and SpaceX and the chairman of the board of directors of SolarCity, and owns parts of all three companies. These are 27% Tesla and 23% SolarCity.

Unpleasant talk

Revenues of $ 1.3 billion from the battery manufacturing plant in Nevada were preceded by a year of very difficult negotiations. At the end of 2013, Tesla invited officials responsible for economic development in seven states to their car factory in Fremont. After the tour, Tesla's directors told them their plan to build the largest battery factory in the world, and invited them to participate in financing.

Nevada offered standard tax breaks, which in this case would have been $ 600-700 million, said Steve Heale, state development director. But Tesla directors wanted much more. They asked for an advance payment of $ 500 million. It came to talking in a raised voice.

As a result, the agreement was reached when Hill met in Palo Alto with Tesla Business Development Director Dyarmuid O'Connell, a former state government official. They agreed to issue tax credits in the amount of $ 195 million, which the automaker could sell. To do this, the state had to cut back tax breaks for filmmakers and cancel such benefits for insurance companies. Officials considered that these expenses would pay off thanks to the appearance of 6,000 new jobs.

In a report prepared by officials, it is calculated that the economy thanks to this project will grow by $ 100 billion over 20 years, although some economists criticize these figures.

$ 750 million factory

It was also good for Mask to do business with subsidies for the SolarCity factory in Buffalo. At the moment, she buys a lot of panels in China, but soon promises to go on the production of its own panels. To this end, the company will receive investments to build workshops of $ 750 million and spend another $ 150 million to start work in the factory.

By the time of opening in 2017, it should become the largest factory for the production of solar panels in the Western Hemisphere. New York State officials see investment as profitable, because the factory will have to create 3,000 jobs, and replace a long-dated steel mill.

SpaceX depends more on contracts with the government than on subsidies. However, she also received her benefits on the device launch site. The infusion will be $ 15 million from the state and $ 5 million from local government funds.

Key help

Government money is extremely needed for Tesla and SolarCity factories to lower the cost of developing and manufacturing products. At the same time time is running out - some of the largest subsidies are expiring. 30% tax breaks for the installation of solar panels will turn into 2017 at 10% for commercial organizations, and completely disappear for private households.

Tesla car buyers also receive a tax credit of $ 7,500 and a return of $ 2,500 from the state of California. Officials set a limit for these discounts on 200,000 cars, and Tesla has already sold a quarter of that amount. In total, buyers received $ 284 million in tax breaks and $ 38 million in refunds.

California has now been passed, but has not yet begun to act, a law according to which not all buyers will receive tax benefits of $ 2500, but only buyers with a certain level of income. Competition from automakers is also pressing out - if they start producing more cars that do not commit harmful emissions, they will buy less quotas.

In general, the government supports electric cars and solar panels in the hope of their wide distribution, and, as a consequence, reducing carbon emissions. True, Musk promised much more active progress of this enterprise. In 2008, in his blog, he wrote that after the production of an expensive sports electric car (which is no longer for sale), “a sedan worth half of the $ 89,000 Tesla Roadster costs will be released, and the third model will be even cheaper”.

In fact, the second model is sold for $ 100,000, and the third, which still does not appear, will cost about the same money. The price of the next one, which is cheaper, may fall to $ 35,000 - $ 40,000 after subsidies - but this is still unknown.

Battery Subsidies

Now Mask is moving in the direction of energy storage. During a noisy presentation of batteries for home and business on the concert stage to the music, Musk announced that one day such batteries would make the global energy network unnecessary.

He spoke about his vision of inexpensive and clean energy available in remote villages of underdeveloped countries and in the homes of industrialized countries, which will be disconnected from conventional power grids. His factory in Nevada will produce both Tesla cars and batteries.

But what he didn’t say was about the already reached agreement on subsidies in the amount of $ 126 million as a company developing energy storage technologies.