Will Tesla's Gigafactory Be a Gigasized Taxpayer Drain?

At the Wall Street Journal's ECO:nomics conference in 2012, Tesla Motors CEO Elon Musk asserted that a $465million Department of Energy loan granted to Tesla in 2010 was a "helpful catalyst" but not critical to the company's survival or success. The low-interest loan was awarded to the company at a time when, and because, commercial lenders would have demanded a much higher interest rate to protect against what S&P recently called "considerable uncertainty" in Tesla's long-term prospects. Musk said Tesla Motors Inc. didn't need the federal government loan to go public or to survive, and also addressed "criticism of government subsidies that say such incentives pick winners and losers in the market, rather than allowing the best companies and technologies to win on merit,"according to a WSJ article.

Of course, every green "rent-seeker" insists their sops aren't subsidies, and rather it's the other guys' that are. Why, they're only getting a hand-up, not a hand-out, a little help for a level playing field is all (and other catch-phrases in which the subsidy-seeker is well-versed). Tesla is indeed different than most, if quite to the contrary of what it would have us believe. In the wake of Solyndra and other stimulus-related wake-up calls, subsidy-dependent companies have adapted, both in the form of the subsidies they seek and also fine-tuning their message to a public wary of further such boondoggles. Tesla, more than most, seems to have found success pushing the line that somehow they're not like those others riding the taxpayer gravy train.

This warrants a closer look at Tesla's story. Taxpayer dollars have supported the company throughout its rise - just as they have SpaceX and SolarCity, two other ventures of Tesla CEO Elon Musk. Tesla has uniquely benefited from more than $300 million in state and federal subsidies. In addition in the last 18 months, Tesla has received more than $260 million in regulatory credit sales through federal CAFÉ standards and zero-emission vehicle credits programs. Tesla talks the free-market talk while in fact requiring government intervention as life-support.

Despite Musk's comments to the contrary, Tesla has recently engineered a bidding war among state and local governments in Arizona, California, New Mexico and Nevada in order to maximize taxpayer dollars for locating a Tesla Gigafactory that will manufacture lithium-ion batteries for Tesla vehicles in these jurisdictions. San Antonio recently offered up nearly $800 million in local incentives for building the Gigafactory there.

Yesterday's big announcement was that Tesla's partner in the $5 billion project, Panasonic, would commit only $194-291 million ($20-30 billion yen) of the initial plan of $1-2 billion. This likely hints at concern over the significant risk that attends any business model so plainly reliant on support from the U.S. taxpayer. The risk is real. One need only look at the large scale venture that would produce lithium-ion batteries to power as many as 500,000 Tesla vehicles in 2017 while Tesla sales have slowed in recent months.

With Tesla's own planned investment of $1-2 billion to build the Gigafactory and Panasonic's modest investment, there is still a significant funding gap to close in order to begin construction this fiscal year, as Tesla has announced. Raising more capital is the inevitable next step. This begs the question - from where will the rest of the capital come?

While Musk has asserted that the company is not panhandling for more federal and state subsidies, the company has required heavy government support at nearly every stage of development. No other partners for the effort have been announced, which begs the question of how much Tesla (and Panasonic) are betting on the U.S. taxpayer to prop up the Gigafactory project, now or down the road.