There is no doubt that Elon Musk is a cagey entrepreneur. He has made a fortune in business, in part by leveraging government subsidies that reach into the billions of dollars.
The pattern is continuing as Musk’s SolarCity plans for its Buffalo debut in a sprawling plant being built by the state of New York, which will continue to own it. The state is spending $750 million on the project, one that will put Buffalo at the forefront of a developing 21st century industry and that is intended to spur the establishment of many associated businesses here.
New York’s inventiveness combined with Musk’s savvy business sense stand to serve Buffalo’s great benefit for decades to come. All in all, it counts as a win for Buffalo and for an environmentally important new industry.
That’s not to defend all government subsidies, which many critics accurately deride as corporate welfare. And, certainly, Musk is a wealthy man. But we don’t know of anyone who would turn down free money, poor or rich, when legally offered. When problems occur, they are because governments offer too many subsidies to too many businesses with not enough strings attached, not because business people take the government up on its offer.
Musk is nothing if not a professional at making use of the funds available. As a Los Angeles Times story in Tuesday’s Buffalo News showed, his companies – SolarCity, Tesla Motors and SpaceX (actually Space Exploration Technologies Corp.) have benefited from an estimated $4.9 billion in government support, based on the newspaper’s research. To be sure, Musk and his investors have also put up large amounts of private capital, but the proportion of subsidies is remarkable.
It’s been a winning strategy thus far for Musk, who notes – accurately – that subsidies for Tesla and SolarCity are helping him to develop new and environmentally critical industries quicker than he otherwise could. He also noted that the government has long subsidized the oil and gas industry and bailed out General Motors when the economy tanked.
Still, his strategy is not without risk. At some point, his companies will have to survive on their own merits, and do so before taxpayers weary of the expense. What is more, the customers of his companies also benefit from government supports, and some of those are about to sunset.
For example, the federal government’s 30 percent tax credit for solar installations will be cut to 10 percent in 2017 for commercial customers and will completely end for homeowners.
Another example: Tesla buyers get a $7,500 federal income tax credit and a $2,500 rebate from the state of California. The federal government has capped that benefit, and Tesla is about 25 percent of the way to the limit. California legislators, meanwhile, have passed a law calling for income limits on electric car buyers seeking the state’s subsidy. Tesla owners have an average household income of about $320,000, research shows.
Still, with SolarCity, Buffalo is leaping into an industry that holds tremendous potential as the world seeks to use cleaner and more efficient energy. If government subsidies are ever defensible, it is for efforts such as this.