Guess who is the latest firm seeking to jump on the Bailout gravy train?

Electric car start up Tesla Motors.

“THE Tesla Roadster is an electric car that goes fast, looks sensational and excites envy. The seductive appearance, however, obscures some inconvenient truths: its all-electric technology remains woefully immature and don’t-even-ask expensive. If enough billionaires step forward to inject additional capital to keep the doors of its manufacturer, Tesla Motors, open, I’m happy for all parties.

If investors pass up the opportunity, however, why should taxpayers fork over the capital that Tesla needs? The Roadster is not much more than a functioning concept car that sells for $109,000. The company is requesting $400 million in low-interest federal loans as part of the $25 billion loan package for the auto industry passed by Congress last year.

The program is intended to encourage automakers to improve fuel efficiency, but should it be used for a purpose like this, as the 2008 Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act? Can you conceive any way that federal dollars could be put at greater risk — and for no equity in return, keep in mind — to benefit fewer people?

Tesla Motors, a privately held company based in San Carlos, Calif., has spent almost all of the $145 million in capital it has raised to date. It says it will soon receive another round of $40 million from its private investors to sustain operations.”

If the government wants to get into the business of funding start ups for new technologies, that’s an option that should be carefully debated and discussed prior to cash being disbursed. I am not totally against the idea, as there are some worthy technologies that have too long a development period for private equity to wait on.

But an ad hoc series of companies sidling up to the gravy train after private equity has funded them once, and no longer thinks it s a viable business model?

No thanks. . .

>

Source:
Only the Rich Can Afford It. Should Taxpayers Back It?
RANDALL STROSS
NYT, November 28, 2008

http://www.nytimes.com/2008/11/30/business/30digi.html

Category: Bailouts, Technology, Venture Capital

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

32 Responses to “Tesla Motors Bailout ?”

  1. Jojo99 says:

    While I would like to see Tesler succeed, they need to do it on their own dime, not the taxpayers! This is getting disgusting. Nobody seems to have any pride any longer. Free money from someone else? Let’s go!!!

  2. this will be interesting to see play out. it, very well, could set the mold of the Obama-administration’s policy toward his, oft-referenced, ‘Green Economy’.

    obviously, that wouldn’t be ‘Change we can believe in’. let’s hope that isn’t the outcome re:Tesla Motors.

    The Obama-administration would be better off ash-canning Tesla Motors, and teaching Tesla in Schools..

  3. Bruce in Tn says:

    OK…a little off topic again (when you were dropped on your head as many times as I was as a child you are always a little off topic..) but I keep seeing this initial number for Black Friday sales as up 3%…but as I usually do, I have read the article and something bothers me..

    http://www.bloomberg.com/apps/news?pid=20601103&sid=aBvgyrY3aNPg&refer=us

    U.S. ‘Black Friday’ Sales Rise 3%, ShopperTrak Says

    “ShopperTrak has estimated that 9.9 percent fewer shoppers will descend on stores this holiday season, producing a sales gain of 0.1 percent. “……

    Now, Lucy, please ‘splain to me why, with the consumer and overall psyche being what it is, that a 10% decrease in foot traffic is going to result in a positive number. I have rolled this around in the big empty cavern on top of my neck and I just don’t trust this story….

    Somebody smart help me out here….

  4. Bruce in Tn says:

    Nothing worse than a moron adding on to an off topic post, but here goes…my wife agrees this is important …

    “ShopperTrak measures foot traffic in shopping centers and malls using more than 50,000 video devices. “….

    I would have called this guesstamation unless I worked for ShopperTrak…where are the real money numbers???

  5. awilensky says:

    I’d rather grant 400M to Tesla than give a penny to the banks or GM.

  6. Bruce,

    take it easy with the ‘moron’ bit, it’s hardly necessary. there is no “OT:”-thread, where else is one to ask Q’s?

    past that, I think your nose is correct, the story is spurious, and curious, thereby..

  7. Archiphage says:

    So Project X has too uncertain a return for interested people to risk their own money on.
    Therefore, let us force uninterested people, at gunpoint if necessary, to fund Project X.
    Hmm. Obviously no possibility of corruption or other problems here…

  8. grumpyoldvet says:

    Mark….amazed how many here on this blog and others are critisizing Obama and what he may, can, will or won’t do. Ease up Buddy, he hasn’t even been sworn in as yet. Remember we currently have a President but if anyone thinks he has abandoned ship guess again..http://www.nytimes.com/2008/11/30/washington/30labor.html?_r=1&ref=todayspaper

  9. Steve Barry says:

    Bruce:

    Two things to consider…there are 5 less shopping days between Black Friday and Christmas this year, so this year Black Friday should naturally get more traffic…also don’t forget a 3% rise in spending just about covers inflation only. We really need to wait till the season is over and find the real increase in total spending. I went to a popular mall yesterday to see a movie…saw no big crowds and movie was pretty empty.

  10. super_trooper says:

    Finally we’re seeing some small not “too big to fail” companies getting money. If money keeps trickling down at this rate, maybe a penny or two will end up in my pocket. If I were Tesla, I’ld buy a bank.

  11. gov, old sport, I said as much. “…could set the mold “.. “that wouldn’t be …”

    remenber, Reading Is Fundamental.

    and, of course, Bush 43 is far from abdicating..

  12. grumpyoldvet says:

    Mark….I read and understand words very well. As I said, just wait and see what he does.

  13. old sport,

    sounds familiar :

    November 30th, 2008 at 8:32 am
    this will be interesting to see play out

  14. jnutley says:

    I think you guys have gone off the mark here. Mr. Musk is an astute businessman, using his Dot.com fortune to make some Geek dreams come true. He isn’t stupid or lazy nor does he hire stupid or lazy people.

    It’s a reasonable case to make that in this environment, private money will try to minimize risk by following public money. That’s often the case in Aerospace; “Do you have a NASA contract? A Military Space contract? Hell if I’ll throw my money into some amateur’s garage, come back when you’re a grown-up kid!” If this is how the American car market is likely to play out as a result of an auto bailout, then some folks would call it “due diligence” to try for a share.

    If Tesla is stepping up to the trough, it must mean that the management believes they can’t compete without Gov backing. Whether it’s “moral” or not, if the only way the board or the CEO and CFO or what have you believe the company can survive the current stress is to have Gov loans, then they’ll definitely apply.

    From this point of view, Taxpayers are the new Warren Buffet. If it got Gov Money then it will survive and our money will be “safe” there, if not, then it’s Doomed! Run Away! No matter what happens to Tesla or GM, if this becomes the prevailing attitude, that will lead to very rough times for start ups in all categories.

  15. Mannwich says:

    @Bruce in TN: Sorry to continue the OT discussion but I’m not really suprised by this. Mindless consumers love (I mean LOVE) discounts, no matter what they’re buying. The perception of deep cuts brings out whatever credit they have left no matter how irrational the purchases. My sources (and I have a good one here at home in retail) is telling me that all electronics (e.g. flat screen TVs, computers, etc.) are flying out the door and even selling out. This tells me that people are hunkering down and view these purchases as somehow “rational” because they will be staying home more for entertainment in the ear future.

    I also hear that some retailers are still offering ridiculous credit/financing deals to lure in buyers, so credit is not really completely “frozen” but may even still be expanding in some corners (I believe Steve Barry has pointed this out recently). When the government is guaranteeing all sorts of debt (courtesy of taxpayer money), is it any suprise that consumers may jack up whatever credit they have left and just not pay down the road leaving it in the lap of all taxpayers? This, of course, merely keeps the game going for a little while.

    Profit margins will, of course, be awful as well……..

  16. keynesrhymeswithbrains says:

    Hello everybody, and thank you for such insightful information I hope, the technology that tesla uses gets mainstreamed and perfected, It would be a shame for them to have to discontinue production, or downsize R&D, but like the rest of the car industries maybe some sort of creative destruction, i like the comments about taking the tech skills and teaching them in highschools, clearly this would give us a generation with a green energy education.

  17. DL says:

    I suppose what’s interesting here is the question of what arguments the executives of GM, Ford and Chrysler would make against Tesla getting a piece of the $25B. No doubt these executives would argue (and have argued) that the taxpayers should be forced to pay for the development of fuel-efficient vehicles. And certainly the executives have argued that money should be taken from the taxpayers so that people employed by the auto industry can stay employed. So how do the “big 3” execs
    justify their preference that they be allowed to keep the entire $25B, and give none of it to Tesla?

  18. Archiphage says:

    DL:
    Ultimately, “Because we are us, and you are not.” Same thing that every argument for the aggressive use of force boils down to.

  19. larster says:

    Green energy education is nice and divining arguments to justify this and that as a B school problem is nice, also. However, we have just spent trillions of dollars in bailouts, wars, etc. We need to save jobs so that we have some possibility of working our way out of this mess. I apologize for the snarky comments, but I do not think saving a mfr of $100M autos will help us a lot. Just a hunch, but I think I am right.

  20. Gene says:

    I wish the government would get busy on nuclear fusion. Funding battery powered cars is pretty much a waste of time. We’ve had batteries for nearly a century and the basic technology of electrochemical reactions hasn’t changed. Only the elements used in the reactions.

    A breakthrough in fusion means quantum change for the utility companies. Oil, gas and coal might be relegated to backup systems or initial plant start up to supply the initial heat. Batteries don’t change anything. The electricity needed to charge them will still be generated the old fashioned way: chemical oxidation.

  21. wally says:

    The whole notion that ‘bail outs’ will prevent disaster and remove the risk of economic disaster if not a sure thing by any means. There is not clear evidence that this is true. It is largely a hope and is driven by the desire of the Bush presidency to not be accused of ‘doing nothing’. There is some chance that current government actions are doing more harm than good.

  22. Tom K says:

    Obama’s “investment” in green technologies will be one of the biggest government boondoggles of all time. Will the media cover the story? I don’t think so.

  23. keynesrhymeswithbrains says:

    Well what stocks will get me Obama green $$$….

  24. mmersic says:

    What “Bailout Gravy Train”? Tesla is applying for a loan from money that was allocated to support increasing the fuel efficiency of cars. Tesla makes very fuel efficient cars (that is, electric only)…So naturally they see a potential source of cheap financing and go for it. What’s the big deal?

    Maybe you wish no money was allocated to improve the fuel efficiency of cars? You don’t need to drag Tesla’s name in the mud to argue that point…

  25. leftback says:

    Hank Paulson has one more final bailout program to announce: the Bank Lending Organization for Worldwide Monetary Expansion (BLOWME).

  26. Estragon says:

    mmersic,

    Exactly right. Why should Tesla be put at a competitive disadvantage by restricting cheap funding to the big 3? Does the cheap big3 funding carry a requirement that they only sell cars to poor people, as the headline implies? In fact, reading past the headline I note that Tesla says they need the funding to bring a lower cost sedan to market, not to bail out “very very high-net-worth individuals who invested in Tesla motors”.

    I wish I was surprised to see the Times take a story about the wisdom of bailouts and turn it into some sort of eat the rich thing.

  27. Bruce in Tn says:

    Mannwich:

    You may be right…might be more reason to short American Express next year if you and Steve are right, and you seem to be…

  28. Daniel Hudson says:

    Bruce:

    There are currently two public “guesstimates” of Black Friday/weekend sales out there that I know of.
    1. ShopperTrak: http://www.shoppertrak.com/news_retail_sales_112908.php
    2. National Retail Federation: http://www.nrf.com/modules.php?name=News&op=viewlive&sp_id=610

    The way I see it, there are three main reasons why ShopperTrak’s foot traffic number would not be close to the total sales in $. (1) Does not account for online traffic & sales, (2) does not account for traffic for those stores not in the 50,000 that are watched, and (3) the total $s spent per visit may vary from year to year. You might expect with gas prices on people’s minds even after the recent drop, that they would rather get more of their shopping done in fewer visits.

    Again this is the best data that is available to the public at this time and you have to understand you need to tweak the numbers out there to get at a better estimate of true sales.

    One question I have had on my mind for a while related to your AmEx comment is: why is Capital One stock performing better than AmEx’s over any time in the past two years to now? Capital One has so much more subprime exposure than AmEx so the only reason I can think of is just total credit card volume for AmEx’s customers is going to decrease drastically.

  29. karen says:

    I confess, I’ve never seen a Tesla until this evening.

    http://www.teslamotors.com/design/gallery-body.php

    The design is too racy/showy. Much like the BSDs that drive around in their yellow Lamborghinis…. I much prefer a 911. Understated and classic.

  30. robsix says:

    While I feel as though Ritholtz has a point that an entrepreneur should not jump on the gravy train, I completely disagree with not presenting a grander strategic analysis for the nation and instead focusing on “personal greed.” Maybe he justs wants insightful commentary from viewers on his blog and is writing inflammatory material for just that reason, and perhaps at a 40,o00 foot level thats exactly why Tesla Motors applied for this bail-out help in the first place.

    Tesla Motors is the future.

    A Green Power Grid will result in cheaper (long term) energy from the sun and wind reserves for powering our cars instead of shipping dollars (wealth) across the seas for oil and away from domestic services… Its a huge drain on the economy (think of the money multiplier effect this will have on our banks through deposits and lending. If Pickens is right and $600B/year ends up back in domestic banks…) Anybody not working for the big three or an oil company should at least not disagree with this logic.

    If the government is going to consider saving defunct and failed entrepreneurs/politicians (Wagoner at GM, and the others at Ford, and Chyrsler) then why not help promote Telsa which has been doing the job that the big three should have been doing all along, which is innovating and applying the newest technology.

    It costs a Tesla Roadster owner something like one cent a mile after the initial investment. Sure, the Roadster is an expensive car, but they have limited economies of scale. If they were mass produced, they would not be $109K but something much more reasonable. Not an entry level car price quite yet, but much more affordable iteratively into the future.

    Since this is the technology the big three should have been focusing on for the last decade instead of using political clout to protect their market positions, managements jobs and perks, this technology and the Tesla Motors company should be helped and encouraged by the American government for the long term benefit of the American taxpayer.

    Lets take an even grander strategic view from management at Tesla Motors. Any attention except their obituary is good for them. NYTimes coverage has people saying the same thing… “Pfff, another jumping on the bail out gravy train…” But it begs people to ask the question what is in the best interest of the American taxpayers… A big three still standing and with government support… or a long term viable solution to an oil problem being supported by the government?

    Well played Tesla Motors… well played, indeed.

    Disclaimer: I do not work for Tesla Motors or own stock.

  31. Hi Barry,

    I love your blog and am a loyal reader. I am also a big fan of Tesla Motors.

    I think that your post on the subject may have been factually incorrect and possibly damaging (if even a little) to a great upcoming company.

    What little I know about the relevant government programs and how they relate to Tesla Motors comes from their recent blog entry:

    Message to Washington: Don’t turn a good government program into a bailout
    http://www.teslamotors.com/blog2/?p=66

    I was going to highlight some points, but the article is short enough that I wish you would just read it yourself. From what little I know about you from your public face, I would imagine that Tesla Motors is something you would get behind (if you knew the facts) rather than tugging at the rug under their feet during this precarious time. The company is not focused on fancy little sports cars for the super rich. They are applying for loans to build a sedan version and to supply parts to help other automakers develop their own electric vehicles. I would also imagine they would ultimately like to build a much more affordable vehicle for the general public.

    Best wishes and have a happy holiday!
    Eric
    http://phorgyphynance.wordpress.com/

    Message to Washington: Don’t turn a good government program into a bailout
    by Diarmuid OConnell
    Vice President of Business Development

    published Thursday, November 27th, 2008

    When Congress passed the landmark Energy Independence and Security Act (EISA) in December 2007, the media and Capitol Hill focused heavily on the Corporate Average Fuel Efficiency (CAFE) standard. Congress increased the standard from 27.5 mpg to 35 mpg by 2020, marking the first time the CAFE average had been raised since the 1970s.

    Almost entirely lost in the subsequent discussion was the fact that Section 136 of EISA created a $25 billion fund known as the Advanced Technology Vehicle Manufacturing Incentive Program (ATVM). The ATVM specified that the Department of Energy (DOE) should provide loans, loan guarantees and grants to new and existing automakers and suppliers to encourage development and speed delivery of next-generation cars – vehicles that meet higher standards for fuel efficiency and stretch technology beyond the internal combustion engine. The program aimed to provide “grants and loans to eligible automobile makers and component suppliers for projects that re-equip, expand, and establish manufacturing facilities in the U.S. to produce light-duty vehicles and components that make meaningful improvements in fuel economy performance.”

    The ATVM program became a reality when funds were appropriated in late September to get the program off of the ground. Tesla Motors immediately began developing an application, proposing two advanced technology vehicle projects to be funded by DOE loans. The first project is an Advanced Battery and Powertrain Manufacturing facility that would supply batteries and components for Tesla cars and, more importantly, for other automakers. The second project would help us to finance a manufacturing facility to make our second vehicle, a five-passenger sedan known as “Model S.” We submitted our application to the DOE Nov. 16 – three days after the program became official.

    Meanwhile, the macroeconomic environment deteriorated, and Detroit automakers scrambled to find a solution to quickly replenish their rapidly depleting cash reserves. October sales for nearly all large automakers plunged to near-record levels, prompting executives to consider strategically questionable mergers and even bankruptcy – moves they claimed would cost millions of jobs.

    Naturally, their sights turned on Washington, seeking bailout loans from the Treasury Departments via the $700 billion Troubled Asset Relief Program (TARP). But when the White House made it clear that the TARP was off limits to the automakers, some on Capitol Hill initiated an effort to divert the $25 billion ATVM monies into a general bailout of domestic automakers — an option that would not fund next-generation powertrain work but would instead give ailing businesses little more than a short lifeline. The pressure on Congress to pervert the intended purpose of the ATVM program will be intense when the CEOs return to Washington in the first week of December.

    It would be an enormous mistake to refashion the ATVM into a bailout. The original spirit and intent of the program is critical for the nation’s economic security – and the importance of the program is even greater given the harrowing economic climate.

    Earlier this month, as layoffs were mounting among the Detroit automakers, President-elect Barack Obama broadly outlined an economic recovery plan that could put 2.5 million Americans to work, many of them in “green collar” jobs, building wind turbines, installing solar panels and developing fuel-efficient cars. California is already showing that America needn’t buy into the specious argument that pits the environment vs. the economy: In October, the University of California, Berkeley, released data showing that the state’s energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007 and boosted salaries by $44.6 billion.

    Since its founding in 2003, Tesla Motors has been directly addressing the pressing crises of energy security and climate change. The company is already producing the Roadster, an innovative precursor to other all-electric, zero-emission models in Tesla’s product pipeline — de facto evidence that electric vehicle technology is here today. Tesla Motors is applying for the DOE loans in the truest spirit and intent of the program, and the company does not endorse the diversion of the ATVM resources for a bailout of any kind.