Throwing Money At The One Percent
Tesla has outperformed expectations and speculators remain bullish. A luxury electric car has come to market with premium ascetics and a practical range of over 200 miles. TSLA had an initial public offering (IPO) under $20 three years ago and is now trading above $180 per share.
CEO and founder Elon Musk’s success can be explained in a number of ways: His devotion to his company, as evidenced by his skin-in-the-game from the very beginning; his financial backing by big banks, including Goldman Sachs; and — most importantly– his courting of legislators for huge subsidies at a critical juncture in early development.
Bold risk taking and a willingness to fail in the process of success is his ethos. In 2004, before the IPO, Musk acquired $278 million dollars in private financing, of which $74 came from his own pocket. As such, he is reluctant to acknowledge the government’s crucial role in funding his enterprise that began in 2010 in the early stages of development of the Model S. Like in sport, arrogance is a favorable characteristic of hot-shots in D.C. and Wall Street.
Before the release of the Model S and its IPO, Musk received $465 million loan from the Department of Energy on top of more obscured subsidies. Including those to Japanese based Panasonic that develops the lithium-ion batteries that power each car, the $7,500 federal tax break to owners of electric cars and $51 millions in Zero Emission Vehicle (ZEV) credits. Suffice it to say, the $70,000 sticker price would be upward of $100,000 if not for both state and federal subsidies. There is no wonder the stock took off.
Going green is a good thing and Tesla’s success certainly proves an admirable social nudge — for the elite. Although, investing in Tesla may be marginally eco-friendly is it people friendly?
Consider that, by 2010, major market indices — including the Dow Jones and S&P 500 indicated — that the U.S. was still only about half-recovered from the recession, unemployment was still above 9 percent and some 42 million American were on food stamps. Was it justifiable for the Department of Energy to spend $465 million subsidizing a product only accessible to the one percent?
The marginal affect Tesla’s success may have in preventing a global ecological catastrophe has very low rates of predictability compared to the empirical suffering of millions of American as a result of the Great Recession.
The Toyota Camry represents a normal car for the middle class. It is a mid-sized sedan that starts at $22,235. An inferior transportation good could be the bus or a bicycle for the most socioeconomically marginalized. On the other hand, what is considered a luxury car — something German — starts at around $30,000.
The Model S is more than a luxury good, it is a decadent good. In the climate of the worst economic collapse since the Great Depression, where states around the world and cities within our boarders (namely Detroit) have defaulted on their debt, and millions of retirees’ will no longer collect their promised pensions, the state’ ssupport of Tesla reeks of pungent Nietzschean decadence.
Tesla’s success only benefits the wealthy. The average Model S owner makes over $150,000 a year. One suspects purchase likely includes an air of narcissism such as the one that accompanied the early Prius owners in South Park’s “Smug Alert” episode. So while celebrities, politicians and other bon vivants bask in the musk of their new Model S, the majority of Americans are still struggling to pay their bills on time.
Jacob Hayutin is a writer based in New York. Tesla Roadster image courtesy of Big Stock Photo.