Does Tesla deserve to receive $400 million in low-interest federal loans?

November 29, 2008

An article in Sunday’s NYTimes asks if Tesla Motors deserves to receive $400 million in low-interest federal loans as a part of Congressional efforts to assist the auto industry.

The author, a professor at San Jose State near Silicon Valley, makes some interesting observations:

First, he comically wonders if the $25 billion in low interest loans passed by Congress last year, of which Tesla is seeking a piece, should be called the “2008 Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act?”

And he seems to imply that even if it was appropriate, it may be too late to help Tesla.  Normally, the development of a new line of cars can cost upwards of $1 billion, yet Tesla has spent only $145 million, and is seeking another round of $40 from private investors.  While some of the Tesla Roadster is based off of prior designs by Lotus, it is still quite a technological feat that they are attempting. 

The one-thousand pound battery pack that is supposed to power the Roadster is a major source of expense.  Apparently, even with an 8% annual improvement in the price performance of lithium-ion batteries (the average for that technology), it would take nine years to halve the price of its battery pack.

This, coupled with the fact that the Roadster is a high-end sports car, leads to a product that is extremely expensive and only accessible to the ultra-rich.  This is not a bad thing, in and of itself, but when they seek taxpayer assistance, this fact becomes very relevant. 

As we’ve noted before, we are rooting for Tesla to succeed, but the government should not be in the venture financing business.  In a perfect world, the government should create policies that encourage clean-tech entrepreneurialism, like a predictable carbon tax, or cap-and-trade system, but it should not be picking which companies survive and which fail– with the sole exception being in order to prevent a systemic meltdown of the entire economy. 

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Comments

4 Comments on Does Tesla deserve to receive $400 million in low-interest federal loans?

  1. Nudger on Sat, 29th Nov 2008 6:50 pm

    2. Who do we (taxpayers)support – Tesla or GM – is really a way of asking a very big question: Do we concentrate on seeding thousands of startups, and wait for our salvation to sprout in the form of a few wildly innovative winners? Or do we focus on improving our infrastructure by helping existing companies make their operations and supply chains more reliable and energy efficient? Otherwise said, do we trust entrepreneurs or system builders to help us make the step from a relatively simple, disconnected world to a very complex, highly connected one?

    http://blog.vanno.com/index.php/2008/11/23/tesla-gm-and-a-national-cto/

    Reply

  2. Tom Saxton on Sat, 29th Nov 2008 10:21 pm

    3. Tesla Motors is not asking for government help with the Roadster. The Roadster has already been developed and put into production.

    Tesla is asking for a loan to help develop and put their technology into higher volume, lower cost vehicles.

    Even at today’s prices, LiIon is cost effective from a total cost of ownership basis. If you take the cost of a LiIon battery pack over the expected total mileage of the car, add that to the cost of electricity for those miles, you still end up paying less to drive that car, and replace the battery pack, than you would paying for engine wear and gasoline.

    Reply

  3. Rachel Konrad on Tue, 2nd Dec 2008 3:40 am

    4. To answer the fundamental question that the NY Times rant poses: Yes, the federal government should provide low-interest loans to Tesla (and other R&D-focused automakers that have already demonstrated a commitment to building fuel-efficient vehicles) to encourage and hasten the time to market of a sophisticated all-electric, zero-emission powertrain for affordable, family cars. If this isn’t in the public interest, what is?

    Just to set the record straight with the good folks in the blogosphere:

    The silly headline of the NY Times pontification says Tesla shouldn’t get a low-interest loan from the Department of Energy because “only the rich can afford it.” Afford what? The loan would NOT fund anything having to do with the $109,000 Roadster but with future generations of more affordable sedans and a powertrain facility to make battery packs and other components for other automakers, who will also use them for affordable sedans.

    The columnist says Tesla’s technology “remains woefully immature” and the Roadster is “not much more than a functioning concept car.” Absolutely untrue, as anyone who has test-driven or owned one attests — it’s a viable production vehicle that competes on fit and finish, performance and handling with vastly more expensive cars. We have delivered nearly 100 to customers already and are increasing production starts to 30 per week in 2009.

    Most worrisome: Stross pontificates about Silicon Valley all the time for what is arguably world’s most influential newspaper, yet he doesn’t grok something that will ring true with the most rudimentary students of technology: R&D and early-adopter technology is relatively expensive. Whether it’s a cell phone (even the iPhone from Stross’ beloved Apple) or photovoltaic panels, the first owners pay the most. But the technology inevitably becomes affordable within several product cycles, whether on the timeframe of Moore’s law or (in the case of battery capacity) at the fair clip of 8 percent per year. Given the Model S (base price expected at $57,500) and the Bluestar project (all-electric, zero-emission subcompact for $30,000), why did his rant focus on the Roadster, which isn’t part of the loan application proposal? Makes no sense.

    Finally, the columnist does readers a gross disservice by utterly failing to grasp the difference between the Detroit Three’s “bailout” and what was originally a progressive and well intentioned program to encourage fuel-efficient vehicles. In fact, the columnist calls Tesla’s loan application the “Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act” — again, catchy but dead wrong. The loan wouldn’t be used for the Roadster or ongoing operations. Our blog clarifying the distinction (published before the article and sent to Stross, who apparently didn’t read it):

    http://www.teslamotors.com/blog2/?p=66

    One of the most thorough (and hilarious) refutations of the article if you need further clarification:

    http://calacanis.com/2008/12/01/on-bailouts-and-sports-car/

    Thanks for listening. FWIW, I’m all for spirited debate about public policy, but it should be based on facts, not catchy buzz words and misinformation. Blog on!

    Rachel Konrad
    Senior Communications Manager
    Tesla Motors, Inc.

    Reply

    forcechange Reply:
    December 2nd, 2008 at 8:31 am

    Thanks for the comment Rachel. We also discuss this issue more, along with the Calacanis response at:
    http://forcechange.com/2008/12/01/rebuttal-to-nytimes-critique-of-tesla-and-potential-federal-support/

    Reply

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