About Tesla’s entrance into the most exclusive of corporate clubs, the latter has nothing to do with the title of this piece. Markets are fickle as readers know. What’s valued at $1 trillion today could soon enough be halved, or much more than that. As Alhambra Partners president (and my RealClearMarkets colleague) Joseph Calhoun pointed out in a client piece from a ways back, long-time Tesla shareholders endured many years in which the company’s share price went nowhere. Perceptions change about corporations, and they certainly could change about Tesla.
The simple truth is that Elon Musk was never a crony capitalist. Those who made this argument were insulting genius and mangling a pejorative in the lean years, and so are they now.
To which some will reply that absent a federal subsidy of $7,500 per car, Tesla wouldn’t exist. To believe this view, Musk’s immense net worth was and is a consequence of politicians favoring the electric vehicle industry. Such a limited view requires more than a few responses.
For one, in a perfect world there would be no business subsidies. Politicians should be in the business of protecting our right to live, work and create as we want, not favoring what we do through tax-code machinations. In that sense there’s no disagreement with the Musk ankle-biters. The subsidy was and is improper. Still, a focus on it as the source of a lot or even a little of Musk’s wealth speaks yet again to a very limited worldview.
For two, Musk didn’t create the subsidy. Does anyone seriously think this immigrant businessman forced his subsidized commercial vision on the political class, only for its members to comply? Let’s be serious.
The more reasonable way of looking at federal, state and city subsidization of electric vehicles is to say that well before anyone had ever heard of Musk, politicians started to buy into all the alarmism about a warming planet. Informing this alarmism was the idea that cars powered by gasoline were a not insignificant player in the earth’s alleged “warming.” In short, Musk didn’t create the favoritism; rather it was a consequence of nail-biting that well predated Tesla’s founding.
In that case, Musk shouldn’t be faulted for operating in an environment that was moving toward subsidy long before Tesla started producing cars. In other words, Musk’s vision of electric vehicles wasn’t inspired by Congress (interest in electric cars goes back at least to the days of Thomas Edison) as much as Congress is populated by scaremongers who actually think traditional automobiles are a threat to the planet. It would be funny if it weren’t so sad, but let’s not blame Musk for being a businessman in a world run by politicians who think planetary doom is a real thing.
At which point let’s consider the subsidy itself. As even Musk’s biggest critics keep pointing out, particularly the earliest Tesla’s were toys for the well-to-do. Which is the point. The idea that a $7,500 subsidy was going to sway the buying choices of individuals for whom $7,500 is a rounding error defies basic reason. Leaving aside the modern truth about Musk’s increasingly dedicated customer base, the original buyers of his cars were plainly rich people eager to signal their unique virtue. A focus on $7,500 per car misses the point.
At the same time, it’s worth pointing out that the subsidy that has tarred Musk with “crony capitalist” was available not just to Tesla, but to all producers of electric vehicles. That it was and is raises an obvious question as to why there aren’t countless other centi-billionaire electric car makers like Musk; allegedly living high on “crony” handouts.
The above question has never been answered, because to do so would require Musk’s critics to acknowledge what’s true: the subsidies did not make him. If they did, as in if his commercial and entrepreneurial genius were irrelevant to the discussion, then it would also be true that Lordstown and other electric-vehicle makers would similarly be enjoying nosebleed valuations. Please read on.
Addressing the silly notion of subsidies and “crony” wealth further, it’s too easily forgotten that the $7,500 federal tax credit expires for electric vehicle companies after somewhere in the neighborhood of 300,000 cars sold. This is important when it’s remembered that stock markets never price in the present. They anticipate. They’re a look into the future. Oh well, well before Tesla was a trillion dollar company it was a business valued in the tens of billions. Tesla achieved this valuation despite vivid market knowledge that the subsidy allegedly propping it up was eventually going to expire.
To which some will respond (not unreasonably) that subsidies, like government programs, rarely die. In which case markets are anticipating a forever quality to the $7,500 per car handout that Tesla has allegedly been gorging on.
Ok, but if true, logic dictates high valuations for all manner of electric vehicle makers. If Musk is a “crony” as a opposed to a genius, then it’s obvious that he should have all sorts of company in or near the trillionaire club. Except that he doesn’t.
At which point, please stop and consider how more and more legacy car makers are promising a future defined by electric autos. Markets once again anticipate. If electric’s genius were solely a function of federal handouts, then why aren’t the valuations of General Motors GM -0.7%, Ford, and all manner of other global automakers on par with that of Tesla?
Who knows, but the answer once again seems to be that markets are a look ahead. Applied to Tesla, its valuation has theoretically never just been about cars. It’s about a future that will redefine transportation, and arguably something beyond. In short, Tesla’s valuation has nothing to do with a small government subsidy, and everything to do with a future that politicians have no capacity to imagine, and as such, one they can’t subsidize.
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