“Ingratitude” at Tesla Motors?

Mother Jones’ profile of Elon Musk and Tesla Motors trots out a familiar story about industrial policy’s role in the success of infant industries. It also blasts Musk’s Silicon Valley cohorts for their ingratitude in the face of government assistance. But when we look a little more closely, the Mother Jones narrative about Musk’s success breaks down.

The relevant program in Tesla Motors’ case is the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program, a $25 billion fund established by the 2007 Energy Independence and Security Act. The ATVM putatively offers loans to automotive companies to help them meet the Corporate Average Fuel Economy (CAFE) goal of 35 mpg by 2020. Boosters tout the ATVM as a program to help companies through the so-called startup “Valley of Death” during which companies transition from product release to full-scale production, a period so-named because companies are particularly vulnerable.

A closer look at the ATVM shows that we should in fact be grateful if the program disappeared altogether. Tesla has been the ATVM’s most public success after  re-paying its $465 million loan nine years early. But Tesla likely succeeded not so much because of its ATVM loan, but because it has a fundamentally sound business strategy and a product capturing the imagination of consumers. While buyers of Tesla’s Model S benefit from a $7,500 federal tax credit for plug-in electric vehicles, in addition to benefits like access to HOV lanes and free charging infrastructure, these subsidies benefit the EV industry as a whole and cannot explain Tesla’s success relative to its peers.

And according to the DOE’s own data, 81 percent of the $8.4 billion spent so far by the ATVM program went to Ford and Nissan Motors—neither of which is a start-up navigating the Valley of Death. These firms could almost certainly purchase loans on the private market—are they really the vulnerable companies that defenders of the ATVM want to benefit?

This is not the ATVM’s only shortcoming. A February 2011 GAO report concluded that the ATVM lacked the expertise to properly monitor loan recipients, and lacked the crucial ability to measure how much the loans contribute to successfully meeting the stricter 2020 CAFE standards. Supporting a program whose success we can’t measure is unwise at best and defending corporate welfare at worst. The ATVM has had some very measurable failures, most notably its $500 million bet on Fisker Automotive that turned south. Despite having received nearly $200 million in taxpayer dollars, Fisker nonetheless announced this May it preparing for a possible bankruptcy filing. Public embarrassment from Fisker’s failure put the ATVM on hold, despite having loaned out barely a third of its allocated funds.

The ATVM has since re-opened and is now accepting applications for loans, but the question remains whether we will see more successes like Tesla or blunders like Fisker. The incentives and track record of subsidized loan programs suggest that it would be wise for the ATVM to quit while it’s ahead.