Tesla Troubles Illustrate the Futility of Subsidized Energy

PennFuture - Tom ShepstoneTom Shepstone
Natural Gas NOW


Elon Musk is a great con man but his Tesla troubles suggest that will only take you so far when your business is subsidized energy – milking the government.

Renewables and natural gas are natural partners; a point we’ve made numerous times here but many renewables advocates suppose they don’t need a partner, except for the government. No one better exemplifies this subsidized energy business model than Elon Musk, the pasty-faced trendy fellow who has captured the minds and hearts of millennials and investors desperately hoping to be on ground floor of the next Amazon.

Musk is a hustler’s hustler, though; a man with an imagination bigger than the universe and the ability to sell others on his visions. Nonetheless, a string of recent bad news for Tesla may signal the approaching end of his subsidized energy scam, requiring him to pack up the wagon and move on to the next town.


Cuomo and Musk cousin who presided over the SolarCity fiasco in happier times

First, there was the news we reported here in June about the sweetheart deal Musk talked New York Governor Andrew Corruptocrat Cuomo into giving him on SolarCity. It was a “get out of jail free card” contract provision effectively allowing Tesla (which now owns SolarCity, having taken over the failing company from Musk’s two cousins) to bail on New York at no cost. owe nothing back for that part of the Buffalo Billion awarded to SolarCity by Cuomo.

The great Jim Heaney at InvestigativePost dug into the story three months later:

New York’s bet on SolarCity is considered risky because it’s not structured like a typical economic development deal. Many of the state’s subsidy programs are paid out incrementally, year-by-year. A company paying reduced property taxes in exchange for creating jobs, for example, would receive the savings gradually as it increased hiring – not upfront. When it comes to SolarCity, though, New York has already spent the money. Now, taxpayers are waiting for the company to hold up its end of the bargain.

State officials argue that, since New York owns the building and some of the equipment, taxpayers are protected. If SolarCity doesn’t make good on its promises, they say, the state could offer the factory to another company. Experts caution this would likely require another round of subsidies and more state spending, since the factory was custom built for SolarCity.

The terms of the deal between New York State and Silevo – later SolarCity, now Tesla – have been updated 11 times so far.

One of those changes, made in October 2015, adds to the section of the contract dealing with “Force Majeure” – a legal principle that would excuse the company’s failure to meet its contractual obligations because of unforeseeable events: hurricanes, earthquakes, terrorist attacks.

“As a general rule, if a Force Majeure occurs, then both parties’ obligations are essentially excused going forward, and the contract dies right there,” said Talley, the Columbia law professor.

The original Force Majeure language was boilerplate, also included in New York’s contracts with LED manufacturer Soraa, biotech company AMRI, and IBM, which – like SolarCity – occupy facilities paid for by the state.

In SolarCity’s contract, however, new language was added to the Force Majeure clause: changes in federal, state or municipal policy that “materially and adversely” affect the company’s business. Those changes, the amendment says, could include “significant increases in tariffs or duties” on the equipment needed to run the factory.

Heaney also noted the tortuous history of SolarCity:

The company had been hemorrhaging jobs and money before it was bought by Tesla last November. Its two co-founders resigned soon afterwards. And the company has shifted gears on its plans for the Buffalo factory, striking a deal with Panasonic, which will make solar components that Tesla will buy.

Production in Buffalo began at the end of August, over a year later than originally planned. It will start slowly and “ramp up exponentially over time,” a Tesla spokesperson said.

The facility, billed as the largest solar panel factory in the Western Hemisphere, stood empty for months after it was completed. The project was tainted by the indictment last year of top state officials and executives at the local construction company chosen to build it.

Then, a few days after Heaney’s article, came the big settlement for scamming the Feds:

SolarCity has agreed to pay $29.5 million to settle long-running claims it overcharged the federal government for rebates on solar systems installed between 2009 and 2013.

The settlement ends a five-year battle between federal regulators and the solar system installer, now a subsidiary of Tesla, over payments from the American Recovery and Reinvestment Act. The program was part of President Barack Obama’s stimulus package to boost the economy following the 2008 financial crisis.

“This program expired, but this settlement demonstrates that the government will still hold accountable those who sought to take improper advantage of government programs at the expense of American taxpayers,” acting Assistant Attorney General Chad Readler said in a statement announcing the settlement on Friday.

Next, came this from the on-line stock newsletter Seeking Alpha:

Based on the information from The Buffalo News, which seems to be sourced directly from Panasonic and Tesla, it now appears unlikely that there will be any Buffalo Solar Roof production in 2017. Tesla continues to execute poorly on Solar Roof and we continue to envisage poor prospects for the product as well as the company.

More than a year after the SolarCity merger, Mr. Musk has very little to show for the merger synergies. What we have from Tesla are a string of broken narratives, a high profile energy storage business with no prospects of profitability, a shrinking solar business with no prospects for success, and a stream of ex-SolarCity executives who have jumped ship prior to demonstrating any of the touted benefits of the merger.

Furthermore, the company is on the hook for employment guarantees at the Buffalo factory. SolarCity continues to suck much needed cash out of Tesla. It will be interesting to see how long Tesla will continue to persist with SolarCity operations and how long it will be before Tesla walks away from its State of New York obligations.

Whether it is the Solar Roof, or Powerwall, or Model 3, or tunnels, or mars travel, we continue to find Elon Musk’s proclamations not credible and fantastic.

Elon Musk does have a wonderful skill of promoting desirous products and building up demand for non-existent products. But these products are desirous because no competitor will make them as they make no economic sense. Lack of competition may make it appear that the company is ahead of competition but that is an optical illusion. We expect the stock to implode as investors and analysts comes to grips with this base reality.

This seems to nail it but misses the fact the company is really not “on the hook for employment guarantees at the Buffalo factory” given what we know about that “Get Out of Jail Free Card.” So, it’s even worse.

Now comes word that reality is hitting home:

Tesla fired hundreds of workers this week, including engineers, managers and factory workers, even as the company struggles to expand its manufacturing and product line.

The dismissals come at a crucial point for the company, which is pushing to increase vehicle production five-fold and reach a broader market with its new Model 3 sedan. The electric vehicle maker missed targets for producing the lower-cost sedan, manufacturing only 260 last quarter despite a wait list of more than 450,000 customers

In multiple interviews, former and current employees told this news organization little or no warning preceded the dismissals. The workers interviewed include trained engineers working on vehicle design and production, a supervisor and factory employees…

Workers spoke on the condition of anonymity because they feared reprisals from the company. Employees said the firings have lowered morale through many departments. Several said Model X, Model S and former SolarCity operations seemed to be targeted.

The bad news just keeps coming for Tesla but Musk puts on his pretty face, issues another bad proclamation or announces some grandiose goal to distract from the reality. He’s a spinmeister with a knack for speaking to the trendy. They lap it up as he laps up billions of government subsidies for SolarCity and Tesla. The solar business makes no economic sense without the financial support of ratepayers and taxpayers and the political support of politicians such as Corruptocrat, but “what can’t go on forever, won’t” and those subsidies are slowly drying up.

Ironically, solar could make sense, if the subsidies were fully withdrawn and the renewables industry focused on a supplementary role to natural gas and learned to compete in the real world. That’ll never happen, though, as long as scammers continue to milk the government for subsidies and pursue unrealizable utopian schemes that require someone else to pay. Elon Musk has tarnished the renewables brand badly after appearing to be the crown prince of the movement at the outset. He has set it back decades with his schemes, aided and abetted by the crown prince of political corruption, Andrew Corruptocrat Cuomo.


The post Tesla Troubles Illustrate the Futility of Subsidized Energy appeared first on Natural Gas Now.

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