Pando

Elon Musk's choice under Trump: His soul or his companies

By Paul Bradley Carr , written on February 24, 2017

From The Disruption Desk

Consider poor Elon Musk.

I don’t mean that as an expression of sympathy. To be clear, it’s hard to feel sympathy for any tech CEO who continues to cozy up to Donald Trump even after Travis Kalanick has bailed. What I mean is this: Consider the possibility that Elon Musk might soon be poor.

The idea is not so far fetched. According to a recent earnings call, report, “Tesla, despite having about $3.5 billion on its balance sheet, is somehow running out of cash at ludicrous speeds.”

The problem is the new Tesla Model 3, the development of which (along with the company’s mission to build a fully self-driving car) is proving to be insanely expensive -- potentially draining the company’s bank account to less than a billion dollars.

That wouldn’t itself be a problem, were it not for another looming problem: Right now Tesla purchasers benefit from a $7500 federal income tax credit designed to encourage sales of electric cars. The rebate is good for the first 200,000 cars sold by any electric vehicle manufacturer.

Says CNN Money, that 200,000 is likely to be reached some time in 2018:

The tax credit won't disappear overnight. Assuming Tesla reaches that threshold in the first quarter of 2018, its buyers would get the full tax credit during the second quarter of 2018. The credit will fall by 50% to $3,750, during the second half of 2018, and to $1,875 during the first half of 2019. 

Per a separate CNN Money report, the expiration of the tax credit is likely to have a meaningful impact on Tesla sales, with up to 40% of potential customers saying they wouldn’t buy a Tesla without the credit.

All of which would be enough to make any electric car entrepreneur sweat. But the news gets worse for Musk now that Donald Trump is in the White House: Republicans have made no secret of their distrust of environmentalism -- just consider recent Trump’s pro-pollution executive order, his appointment of a former oil executive to lead the state department, and his choice of an anti-EPA activist to head the EPA. Even if the tax credits don’t get cancelled before their natural expiration date, there’s certainly a distinct possibility that Trump and his big oil buddies pass more laws that favor fossil fuels over electric vehicles.

Meanwhile, Tesla recently bought Solarcity which is another company whose expansion is driven largely by federal subsidies which allow purchasers to offset the cost of installation against their federal income tax. An attack on those subsidies -- not unthinkable for a president who believe climate change is a hoax -- would deliver yet another blow for Tesla/Solar City.

Oh, and did I mention Elon Musk’s third company: SpaceX? That would be the company whose number one client is the federal government, in the form of NASA. Sing it with me: “The Trump administration ha-aa-aa-tes science!”

All of which provides a plausible explanation for one of the weirdest developments of the Trump era: Elon Musk’s rush to embrace Donald Trump when even the likes of Travis “Boober” Kalanick have run a mile in the other direction.

Without continued help from Trump’s federal government, Musk could see a potentially catastrophic body blow dealt to all three of his companies, perhaps all at once. A body blow that -- if that 40% figure from CNN is accurate -- could do far more financial damage than a boycott of Tesla or Solarcity from angry anti-Trump consumers.

So next time you wonder why Tesla’s CEO is palling around with a guy who distrusts science, hates the environment, assaults women, demonizes immigrants, encourages bullying of transgender kids and will likely kill us all before long… take a moment consider poor Elon Musk. Because Elon Musk has considered it, and has clearly decided he’d rather lose his soul than his company.