A week ago, City Journal published “Crazy Like a Visionary,” a review essay I had written about Ashlee Vance’s new biography of Elon Musk, the man behind Tesla Motors, SpaceX, SolarCity, and sundry other starry-eyed, high-tech enterprises.
As I explained in the essay, my interest in “Green energy” and interplanetary space travel is minimal at best — or, to be more accurate, I am indifferent to space travel. I like it here on terra firma, thanks very much, and I am positively hostile to the Green Lobby, which is full of cynical opportunists like Al Gore, who have greatly enriched themselves by pandering to liberal smugness, and fraudulent mountebanks like Michael Mann whose preposterous “hockey stick” graph sums up in a single mendacious image so much that is wrong with global warming climate change hysteria.
“Environmentalism,” the philosopher Harvey Mansfield observed more than twenty years ago, “is school prayer for liberals.” It seemed almost funny then, when the eco-nuts were but a fringe phenomenon. Now that they’re making government policy on a national scale (the war on coal, e.g.), the humor has palled. The word “sustainable” has been transformed from a reliable emetic into a weapon in the war against prosperity.
When it comes to energy, in short, my own view was summed up by the Manhattan Institute’s Robert Bryce: what the world needs now is cheap, abundant energy, period, full stop, end of discussion.
It follows that I am an enthusiastic proponent of fracking — frack early, frack often is my motto — for the simple reason that I think you want to have as much energy as possible as cheaply as possible. The recent collapse of oil prices — the other day oil was trading at under $40 a barrel — has made fracking less economically attractive, but I expect that is a temporary condition.
I mention these disclaimers because the burden of my essay was to celebrate the achievements of Elon Musk, the “visionary” of my title. This turned out to be too much for some of my readers.
“Musk’s greatest success is as a tax-farmer,” fumed one commentator, “a fact glaringly overlooked by his hagiographers. And the Mars fetish is on a par with the mad religiosity of Jim Jones.” “Musk is a free lunching huckster,” concluded another serious thinker. “Kimball is a dolt.”
I’ll leave that last comment — along with the witty “What a ghastly prose style!” — to one side. But I think it is worth pausing over the criticisms of Musk and the issue of government subsidies.
I’ll be brief about Musk himself. The chap Ashlee Vance portrays is a fascinating specimen: driven, talented, personally difficult and professionally demanding. Like Steve Jobs, with whom he is often compared, he is a perfectionist who can’t countenance anything less than total commitment and stellar performance. Some knowledgeable observers agree with another CJ commenter that Musk is “just another fraud.” No evidence was adduced for that judgment in the comment, but it is perhaps worth noting that the animus it expresses finds echoes elsewhere. In a personal communication, a friend who is a successful investor noted in response to my piece that he had shorted Tesla and SolarCity and opined:
The Tesla bubble rivals the dot com excesses. Green technology + scam accounting + crony capitalism + dishonest CEO = Tesla.
I agree that that tabulation spells disaster. But does Tesla belong on the right side of the equals sign? I am going to leave the charges of “scam accounting” and dishonesty to one side because I have no way of adjudicating the charges. But in a larger sense, I think we can say that the proof will be in the pudding, which is still on the boil. Maybe it’s all an elaborate Wizard of Oz fabrication and Elon Musk is but a cackling jokester manipulating a congeries of shiny baubles. Maybe.
At the end of my piece, I quoted the investor Peter Thiel, an old rival of Musk’s at PayPal, which they collaborated on in the early 2000s:
We had a blanket rule against investing in clean-tech companies for about a decade. … On the macro level, we were right because clean-tech as a sector was quite bad. But on a micro level, it looks like Elon has the two most successful clean-tech companies in the U.S. … [Y]ou have to ask whether his success is an indictment of the rest of us who have been working on much more incremental things. To the extent that the world still doubts Elon, I think it’s a reflection on the insanity of the world and not on the supposed insanity of Elon.
Of course, Thiel might be wrong. To make a decision about that, we would need to have some agreed upon metric of success and a timeframe within which it would have to be accomplished. There is no doubt that Tesla is a risky venture. But that’s what capitalists do: they take risks. Sometimes they pay off. Often they don’t. Time, the ever eloquent, will eventually tell.
“But capitalists should not indulge their risky ventures with government, i.e., with my money!” That’s the more general criticism about Musk and Tesla. In the course of my essay, I quoted a recent Los Angeles Times article that claims Musk’s businesses have received some $4.9 billion in government subsidies. “Musk and his companies’ investors,” the article concluded, “enjoy most of the financial upside of the government support, while taxpayers shoulder the cost.”
I might have quoted Holman Jenkins, who has published a veritable library of articles in the Wall Street Journal taking Musk and Tesla to task for the subsidies and for not living up to the hype that the Tesla Model S has received. In one piece earlier this month, he dismissed Tesla as a “compliance company” which supports increased mileage mandates for gas-powered cars in order to feather its own nest. A few days ago, Consumer Reports, which has showered accolades upon Tesla from the beginning, really went to town, awarding the company’s new performance model 103 out of 100 points: “Tesla Model S P85D Breaks the Consumer Reports Ratings System,” crowed the headline.
This seems to have sent poor Holman over the edge. Once again, he took to the pages of the Wall Street Journal to lambast Telsa. “If, with their own money,” he thundered on Friday, “Tesla and its customers want to revel in electric cars, that’s wonderful. Nobody should object. But why should taxpayers subsidize their hobby as if some vital public purpose is being served? And why should Consumer Reports prostitute itself in its latest review of the Tesla Model S P85D, calling it basically the best car ever, with a higher-than-possible rating of 103?”
I’m going to leave Consumer Reports dangling in the wind. I don’t much like the leftie publication myself, but, when you come right down to it, at the end of the day, any product manufacturer would rather receive a high rating from Ralph Nader’s nanny sheet than not. (It is worth noting that Tesla’s Model S has received ecstatic reviews all across the board. Motor Trend, for example, called it the “Car of the Year” in 2013.)
But let’s take a second look at the subsidy issue. In my essay for City Journal, I noted that Musk delivered a blistering rebuttal on CNBC to the LA Times story, pointing out, for example, that the $1.3 billion that Nevada has promised for his battery manufacturing factory is in the form of future tax abatements and credits to be applied over the course of 20 years. It’s not as if Tesla has received a check from the state. The credits (which will amount to 1% of what the factory is envisioned to produce) will be granted only if the factory achieves certain productivity benchmarks.
Meanwhile, Musk pointed out, Tesla is adding 6,000 jobs directly, and 16,000 indirectly, to the Nevada economy. As a result of the construction, Moody’s has raised Nevada’s credit rating, which has made it cheaper for the state to borrow. The state will actually make money on the deal.
Something similar can be said about the $465 million loan that the Department of Energy made to Tesla in 2010. Was that a good use of taxpayer funds? One can debate that. But the fact is that Tesla repaid it nine years early and with interest.
Then there is thing that really seems to upset Holman Jenkins: the $7,500 tax break that the federal government grants on hybrids and electric cars, including Teslas.
The purpose of the incentive is to encourage “sustainable transport.” You might, as I do, get a queasy feeling in the pit of your stomach when you contemplate the phrase, but the point is that it is a general incentive offered to all car companies. Up till now, many companies have not taken up the government on the offer. Tesla has sold “emissions credits” to them and has invested the proceeds into developing its electric vehicles. You might think that a silly policy, just as you might think that the mortgage tax break is a silly policy. But the policy is hardly Tesla’s fault. It’s easy to be aghast at the government’s support of such boondoggles as Solyndra, which cost the taxpayer some $600 million and yielded nothing. So far, Tesla and Musk’s other enterprises have had a pretty good showing. (SolarCity, founded a scant decade ago, is now America’s second largest supplier of solar panels.)
If Holman Jenkins is worried about government subsidies of energy, he should take a look at government subsidies of the oil and gas industries. As the IMF has recently reported, worldwide it’s a multi-trillion dollar affair, with China leading the pack.
As a general rule, I am against government subsidies of anything that doesn’t come under the purview of the Pentagon. That’s not because I necessarily disapprove of the announced goal of the subsidies. It’s just that the subsidies so often don’t have the promised effect.
Take the so-called “Great Society” programs. Far from abolishing poverty, they have had the effect of institutionalizing it. The real effect of the “war on poverty” has been to consign generations of blacks to an agenda of dependency foisted upon them by platitude-emitting liberals who bask in the warm glow of self-congratulation. Meanwhile, the chief beneficiaries of all those expensive programs are not the poor but the unionized bureaucracies that have sprouted up to manage the programs, and whose votes the politicians who enacted them can count on.
Elon Musk has said the various subsidies his companies have received have been “useful” but are not “necessary.” They have made it possible for them to do more quickly something that was going to happen anyway. Perhaps.
When you look how often Tesla and some of his other companies have flirted with bankruptcy, it is easy to conclude that the distance between “useful” and “necessary” can be quite narrow. But if you step back and ask: “Would it be a good thing if we could figure out a way to use less fossil fuel without sacrificing economic growth?” you might say (assuming you were not part of the oil or gas industry), “Sure, why not?” Elon Musk has entered the game at a dramatic moment. In 1977, it cost about $75 per watt to make solar cells; now it costs about $.30. Recent advances in battery technology make the widespread residential and commercial storage of the energy generated by solar power an increasingly practicable proposition.
One of the most common complaints about Tesla is that the cars they make are just “toys for the rich.” So far, it is true — all the company’s offerings have been expensive. But that has been by design. In order to succeed, Musk has said, they needed to start with a limited production “proof-of-concept” vehicle. This was the Roadster, 2500 of which rolled of the production line beginning in 2006. Next was the Model S, which went into production in 2012. This year will see the introduction of an SUV crossover, the Model X, which will also be an expensive car.
The real goal, however, is the Model 3, which is scheduled to start shipping in 2017 and will carry a price tag of about $35,000. Bingo. Meanwhile, many other car companies, piqued by Tesla’s success, have all-electric cars on the drawing board, thus advancing Tesla’s announced aim of catalyzing “sustainable transport.”
In my CJ essay I quoted an old Jesuit motto: “Never deny, seldom affirm, always distinguish.”
This is true of government incentives as it is of other things. Simply applying the same formula to all situations is a prescription for sorrow. The proof, as I suggested above, will be in the pudding. But some people are hard to please. Take Joe Nocera. In a remarkable piece in the New York Times on Friday, Nocera had a different sort of attack to make on Tesla. It concerned not government subsidies, but Tesla’s stock price.
Mr. Nocera began his piece with the story of analyst Henry Blodget, who back in 1998 was touting Amazon.com as the Next Big Thing. One day in December, he raised his price target for Amazon to $400. According to Mr. Nocera, the stock shot up more than $45 that day. Then came the popping of the dot-com bubble. In 2001, Amazon was trading at about $8.00.
So the moral is? A blogger called Bryan McGrath is an illuminating Aesop in this case:
Here’s the thing. Amazon is up 10 times since Blodget made the call that Nocera ridicules, or 988% vs. around 200% for the Nasdaq and the Dow, notwithstanding the popping of the Internet bubble in early 2000. … The next Amazon, you say? Bring. It. On.
What I find most interesting about Elon Musk is his entrepreneurial spirit. He has a handful of really big ideas about how to change the world for the better. To date, he has been remarkably successful in bringing several of those ideas to at least partial fruition. This is why, I conclude, his friend Larry Page, co-founder of Google, suggested that were he to die suddenly he would prefer to leave his billions to Elon Musk than to some pedestrian philanthropy.
Could Musk fail? Of course. Most new enterprises fail. The railroad transformed America in the nineteenth century. But if you look at the history of its development you’ll see a large graveyard of failed enterprises and only a few survivors. Capitalism is all about taking informed risk. Risk implies the possibility of failure and, in case of success, the near certainty of disruption. Between them, Tesla and SolarCity may be on the threshold of disrupting the automotive industry and the way a large percentage of America’s power is generated and transmitted. Indeed, they may fail. But what I find curious is how many declared friends of capitalism scoff at their ambition.
It’s as if they approve of capitalism’s creative destruction in theory, but not in practice — unless that practice is in the past. Yesterday’s entrepreneurs were geniuses, of course. When it comes to today’s innovators, however, it seems that their motto is “safety first.”