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Elon Musk: Daimler Saved Tesla, DoE Loans A Bad Idea

 
2,482 views Mar 22, 2012
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Tesla Motors CEO Elon Musk at the wheel of a Tesla Roadster

Tesla Motors CEO Elon Musk at the wheel of a Tesla Roadster

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In the toughest days of Tesla's early years, CEO Elon Musk said on film, he wired $3 million of his personal fortune to the company so it could make payroll. 

Now the always-quotable CEO is downplaying the effect the $465 million in U.S. Department of Energy low-interest loan guarantees it received under the government’s Advanced Technology Vehicles Manufacturing program. In fact, Musk says, it was Daimler -- not the DoE -- which saved Tesla from bankruptcy.

Never shy of saying interesting things, Musk made the debatable revelation at The Wall Street Journal’s ECO:nomics conference in Santa Barbara yesterday. 


“We were saved by Daimler,” Musk said, adding that Daimler’s $50 million, 9 percent ownership of Tesla  was enough to help the company stage a successful initial public offering without the DoE’s help. 

Technically, Musk is correct. Without the investment from Daimler, the DoE loan guarantees would never have been given to Tesla. In reality however, the DoE loans enabled Tesla to do much more than the Daimler investment did. 

Not to be ungrateful for the $465 million of tax-payers’ money, Musk was sure to add “The DOE was a helpful catalyst,” and that without it, Tesla’s IPO “wouldn’t have been as good.”

Tesla CEO Elon Musk, demonstrating the Model X third-row seat and falcon doors

Tesla CEO Elon Musk, demonstrating the Model X third-row seat and falcon doors

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With the 2012 Tesla Model S Luxury Sedan set to enter production this year and the 2013 Tesla Model X Crossover SUV already unveiled, it isn’t difficult to see why Musk is keen to bask in Tesla’s less-grim prospects. After all, history tends to be written by the victors. 

But while we understand Musk’s keenness to distance Tesla from other, less-successful DoE ATVM loan recipients, his next move baffled us.

“Musk said that generally he doesn’t believe government subsidies are good, but in some cases they do help,” reports The Wall Street Journal. 

Instead of offering federal loans which artificially pick and choose winners and losers in the marketplace, he opined, companies should be allowed to survive on their own merits. The implication, of course, was that startups should rely on private investment, not government funds. In addition, he proposes taxing business and individuals on the carbon dioxide they produce, encouraging individuals to make greener choices through taxation. 

Had Tesla not taken funds from the DoE, Musk’s statements would be entirely understandable. 

Elon Musk

Elon Musk

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Given Tesla’s participation in the program however, it doesn’t seem all that fair for Musk to criticize the hand that -- at least in part -- helped to keep the company running. 

In fact, we can’t help but think that Musk’s recent revelation is nothing short of an attempt to distance Tesla from the DoE and its now politically toxic ATVM loan program ahead of the 2012 Presidential campaign.

What do you think? Let us know in the Comments below. 

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Comments (30)

  1. fb_1001015277 avatar John Briggs Posted: 3/22/2012 7:16am PDT

    I think it is fine to oppose a government program in principle, but once the program is in place, participate in that program.
     
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  2. JayHollenkamp avatar Jay Hollenkamp Posted: 3/23/2012 8:35am PDT

    I agree. It's perfectly reasonable to advocate a systemic change that would effect all market participants while making the most of the current system while it's in place. To do otherwise would be to cede an advantage to your competitors. How logical is that?
     
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  3. fb_12418088 avatar Juan Barnett Posted: 3/22/2012 7:26am PDT

    What Musk should have said was that government loans sound appealing and can help companies, but because of the speed at which funds and decisions can be disperesed, along with the political instability of those loans, building a business plan around a government loan is a bad business practice.

    While Tesla did benefit from the ATVM program, other companies spent hundreds of thousands of dollar of capital trying to meet ever-changing requirements from DOE.
     
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  4. leptoquark avatar leptoquark Posted: 3/22/2012 8:00am PDT

    Let's see if he's willing to give the DOE money back, if he doesn't actually need it. There are plenty of other worthy places to invest it....
     
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  5. fb_1001015277 avatar John Briggs Posted: 3/22/2012 8:24am PDT

    Well, since the DOE money is only a loan, he will give it back... assuming they don't bankrupt first.
     
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  6. Chris H. avatar Chris H. Posted: 3/27/2012 1:19pm PDT

    Actually the DOE didn't loan any money to Tesla, they provided a loan guarantee, which is different. The money was loaned by a 3rd party, a bank, on the understanding that if Tesla cannot repay the loan the DOE will.
     
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  7. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:41pm PDT

    tesla motors is incapable of paying anyone back and exists in a state of insolvency, without a viable factory to produce their untested model s, and have close to 100 million left to squander, following elons orders, a man without any manufacturing experience or training. Its all about bankruptcy, and how much mney you can get before it happens, thats the beginning and will be the end, the losers, american taxpayers.
     
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  8. CDspeed avatar CDspeed . Posted: 3/22/2012 8:37am PDT

    I think Elon is right to say that a company should survive on its own merit. But had the Daimler investment and their DoE loan not come in, the stock market collapse would have and nearly did kill Tesla. They were defenatley moments away from their own demise. And I think he should distance Tesla from the ATVM program, the program's reputation has been tainted by a few company failures and it's not fair for Tesla to be associated with thee failed loan recipients. With all the stress Elon Musk endured during the financial crisis I think he deserves to sit back and gloat a little, especially now that both Tesla and Space X have made it through the darkest days and are now headed fo greener pastures. GO TESLA!!
     
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  9. fb_1002941616 avatar Michael Sagaria Posted: 3/22/2012 9:53am PDT

    Well said, CDSpeed...
     
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  10. Mark Stang avatar Mark Stang Posted: 3/22/2012 9:01pm PDT

    Elon wants Tesla to survive based upon it's merit rather than Loans. CDspeed is right in 2009 the stock market went to its lowest level and credit all but dried up. That was when Elon had to use his own money to make payroll. If Tesla is sucessful with the launch of the Model S he will recover that money within months. I wish them the best since they truely have the best product out there. Interstate Highway ready vehicals that are not only just as good as any gasoline powered car but better. Elon took a risk with the Model S by building it from the ground up as an electric but now they have a platform which to base their next generation vehicals such as the Model X on. I am looking forward to the Model S debut in July/August.
     
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  11. fb_523064171 avatar Michael Wulfman Posted: 3/22/2012 9:58am PDT

    Given the statements of Elon Musk, Musk should use all of his first profits to grandly and publicly pay back the DOE in full, before reinvesting those first fruits into the company. Musk should he not be using those borrowed monies in the first place, based upon his own stated philosophy of business development. Having touched that money, Musk owes it to the DoE program, to publicly redeem the program by showing the success of the government’s commitment to his growth. He needs to wash his hands of it by accelerating payment. Musk needs to offset the damage done by media and Republican feeding frenzy to DoE green loans over the Solyndra debacle. Musk needs to establish visibly that, in the case of Tesla, the guarantees were well made!
     
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  12. fb_523064171 avatar Michael Wulfman Posted: 3/22/2012 10:07am PDT

    In fct, Musk should go deeper than that. Not only should he establish visibly that, in the case of Tesla, the guarantees were well made! He damn well needs to announce that they were INVALUABLE to the success and survival of Tesla and that they were DEEPLY APPRECIATED by Tesla! ...even if he wishes he could play that down and doesn’t really want to or can’t bring himself to allow himself to believe it. The money was there for his taking. He took it. He can be thankful. You are welcome, Elon.
     
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  13. JRP3 avatar JRP3 Posted: 3/25/2012 7:53am PDT

    Except if he really thinks the program is a bad idea why would he go out of his way to make it look successful? His claim is that Tesla didn't need the money and that it should not have been available in the first place.
     
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  14. Chris H. avatar Chris H. Posted: 3/27/2012 1:54pm PDT

    Obviously Tesla did need the money. They would not have been able to purchase the Fremont factory and build the assembly line for Model S without it. Like it or not, without the ATVM loan guarantees there's a good chance that Tesla Motors would not be about to start serial production of the Model S.
     
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  15. jeffhre avatar Jeff Hre Posted: 6/26/2012 7:47pm PDT

    Wasn't the Fremont factory money was from Toyota, initially?


    Funny how easily it rolls off the keyboard for Juan and and Michael to write what Musk should say and must do. Should Tesla actually do well, which it appears to be with thousands of S and X orders flowing in, I figure Musk already has those sentiments pretty much covered.
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  16. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:31pm PDT

    what factory, google tesla factory floor, and see a huge warehouse, void of automotive assembly equipment---google plugincars.com, who keep track of real sales and deliveries, which differ greatly from what comes out of elons mouth
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  17. paulwesterberg avatar paul westerberg Posted: 3/22/2012 12:22pm PDT

    It is incredibly expensive to start a new car company.

    Elon is glad to have the loans to himself and doesn't want any other electric vehicle companies to get additional start-up cash themselves. The barrier to entry protects Tesla's business and makes the company worth more.
     
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  18. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:28pm PDT

    the company is technically bankrupt, and has been for years, losing millions each year after year, since he began the fiasco when he pulled the hostile takeover from eberhardt, the founder/designer of tesla cars, using laptop batteries, which heatup expand, causing the car to creep along with its flashers on, off freeway speed
     
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  19. Chris O avatar Chris O Posted: 3/22/2012 12:33pm PDT

    It's understandable that Musk wants to distance himself from the DOE loan program that's a total disaster in the way it's executed anyway in an attempt to escape the Fox News/GOP lynching mob. He is wrong though about those loans being wrong in principle. Any start up/new technology needs to survive a "valley of death" phase in which cash deprivation is no doubt a major cause of premature demise, and some guarantees could go along way to fix that. Don't understand the loans to Ford, GM and Nissan though. They would have invested the cash anyway.
     
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  20. fb_1470388190 avatar David Laur Posted: 3/22/2012 4:53pm PDT

    i dont see an issue with his statement. its like a bank loan, its not a handout. he has to pay it back with the only difference is that he does not have to provide the same collateral a bank might require. you could make the same pat statement for banks and investment houses. its all really a "who knows who" system of pushing money around
     
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  21. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:18pm PDT

    has to pay it back? with around 100 million left in the bank, and still no actual automotive factory, a few billion in deposits and sales of shares---google plugincar.com to find out the real skinny about the south african draft dodger, obamas/chu little bud, a track record of losses and misconstrued designs, for manufacturing coming from a guy without actual engineering design experience, the chinese panels insalled on military sites should be an interesting experiment in really expensive energy, without any real economic justification, by solar city, and spacex, talking about going to mars for a few years without any real significant distance reached, all on american taxpayer money
     
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  22. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:23pm PDT

    insolvency means you do not repay the money---thats what up
     
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  23. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:35pm PDT

    illustrating the president is spending american taxpayer money on finland and chinese jobs where elon gets his solar panels from and his car bodies made. The EV business is far from being new, it predates the 1900's, some things tht sound good, become lost in matters of scale, powered by coal fired power plant electricity, claiming to be emission free is a joke, FOX just points ut whats wrong with the government spending
     
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  24. john_v avatar John Voelcker Posted: 7/16/2012 6:57pm PDT

    @Jackie: I'm confused by the seven (7) angry anti-Tesla comments you've just posted . This one especially is a bit perplexing: Fisker, not Tesla, assembles its cars in Finland.

    And there are plenty of studies showing that electric cars running on even the dirtiest coal-fire electric grid have eqal or lower wells-to-wheels carbon per mile than a 25-mpg gasoline car--are you familiar with any of them? (happy to provide references)

    We encourage robust dialog in Comments, but we ask that our readers inform themselves and not simply parrot talking points they've heard on TV. (As for Fox, many studies that fact-check Fox tend to demonstrate its confusion about what constitutes actual facts.)
     
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  25. Norbert N avatar Norbert N Posted: 3/22/2012 11:47pm PDT

    Perhaps the point was more that with a CO2 (and oil) tax, which covers the actual external costs of CO2 and oil, if that were in place, the loans wouldn't be as necessary, and the government wouldn't have to select specific companies?

    In the US, though, politically that might not be the easiest thing to get through.

    But if such a tax covering the actual costs of oil and CO2 were in place, it might level the playing field to the point where incentives become less important, yet as long as that is not the case, a loan will help (or accelerates things in any case). Also removing subsidies to the oil companies might help in leveling the playing field.

    The success of EVs is in principle natural, not artificial.
     
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  26. JayHollenkamp avatar Jay Hollenkamp Posted: 3/23/2012 8:49am PDT

    Finally, a correct interpretation of Elon's point.

    Subsidies are intended to offset the externalities (pollution) that gas cars create but do not pay for. Elon's point is that, while well intended, subsidies are inefficient because, instead of punishing the entity causing the pollution, they instead give the entity's competitors a head start. To finish the analogy, that's like trying to prevent a racer from jumping the gun by allowing a competitor to begin ahead of the starting line. The problem being, how do you accurately determine which of the other racers to give the advantage to? You can't.

    Elon's point is that punishing the polluter through taxes is more effective than subsidizing his competitors randomly (e.g. ethanol).
     
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  27. elaterite avatar Bob Tregilus Posted: 3/25/2012 10:45am PDT

    There's a place for government loan & grant programs but not at the scale we have seen under Obama. Also, the loans/grants should be targeted at pure (fundamental) & perhaps applied research, not end products. In the case of innovative end product start ups like Tesla, Solyndra, and so on the way government could help is by getting out of the way. In the case of cars: no crash testing necessary until the company has a marketshare equivalent to one percent of the smallest established manufacturer. Until that point, the company's cars are "experimental" and should be marked as such with a big yellow nonremovable placard in the middle of the dash. Government getting out of the way would also help level the playing field for the little guy/gal.
     
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  28. Chris H. avatar Chris H. Posted: 3/27/2012 1:43pm PDT

    The ATVM loan program was authorized under section 136 of the Energy Independence and Security Act of 2007, nearly 2 years before Obama took office. Also, Solyndra did not receive an ATVM loan. Ford received $5.9 billion in ATVM loan guarantees, and Nissan received $1.6 billion.
     
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  29. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:09pm PDT

    especially
    american taxpayer for offshore jobs, like finland and china, where ironman musk rust/ruse is beginning to show
     
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  30. fb_1673478101 avatar Jackie Cox Posted: 7/16/2012 4:07pm PDT

    what a load of c--p, 465 million is worth less than 50 million to a bankruptcy artist ? ha ha ha, one good thing, obama is nearing his end, as he goes so goes tesla, and an end to bilking american taxpayers for his delusions of grandeur
     
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