For the last several years, Tesla Motors has been shaking down just about every public sector economic development agency they can find. They've solicited huge subsidies from the cities of San Jose, Los Angeles, and East Palo Alto. They received a massive loan from the (U.S.) federal government and investments from Daimler AG (maker of Mercedes), Toyota, and Aabar Investments (the global investment arm of the government of Abu Dhabi). And today they raised another $226 million through a smashingly successful Initial Public Offering (IPO).
The only problem?
"The company hasn't had a profitable quarter since it was founded in 2003. It has sold only 1,000 of its high-end Roadster sports cars." --Dan Strumpf, Associated Press
So you've got an unprofitable company in an overcrowded marketplace making overpriced cars that aren't actually selling very well. What's not to like?
If it looks and smells like a Ponzi scheme, it probably it is.
In some ways Tesla Motors is a policy maker's dream. A new American car company, creating green cars, based in Palo Alto, the high tech capital of the universe. But in my experience, anytime a company starts walking around with its hand out asking for subsidies, something is amiss. That's because smart companies, profitable companies, don't want guvmint messing around with their business. They want to quietly and quickly go about making as much money as they possibly can with as little government interference as possible.
Economic development programs usually get embarrassed when they try to pick winners and losers in the marketplace. Generally speaking, the best economic development policy is to invest in great infrastructure -- roads, bridges, schools, and ports -- and human infrastructure -- health and education -- investments that benefit all companies in a region.
Look, lots and lots of people can make a great car. But building a great car COMPANY is extremely difficult. That's why only a tiny handful of the most successful industrialized economies in the world even have an automotive industry. In order to create a successful car COMPANY you have to get extremely good deals on steel, plastics, aluminum, energy, robots, semiconductors, etc. And that benefits those companies with enormous SCALE -- not small start ups. Thus only a few GIANT industrial companies, like Mitsubishi have even tried to enter the car marketplace in the last 50 years.
I sincerely hope I'm wrong about this. But Tesla motors feels like the DeLorean Motors of our day -- a flashy idea for a car that attracts lots of investment -- only to end up mired in legal battles once investors realize that there is an enormous difference between a great idea for a car and a profitable car company.
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