Here Comes Tesla’s Next Big “Ask” from Taxpayers

Submitted by Capsec Advisors

Amid a laser-like focus on ramping Model 3 production, a new emphasis on cost control and an initiative to eliminate any contractor or consultant that is not absolutely essential to the enterprise, Tesla’s management found the time and resources to commission a consulting firm to prepare a report on Tesla’s contribution to California’s economy. News of this report, along with emailed statements from Tesla and glowing praise from the President of the California Manufacturers and Technology Association Dorothy Rothrock appeared in Silicon Valley Business Journal. A copy of the report, commissioned by Tesla and prepared by consulting firm IHS Markit, can be found here.

Unless the public relations department of a company finds itself sitting around with too much extra money and too much time on their hands, there is only one reason a company commissions a report like this: they want something from taxpayers.

This is a prelude to Tesla’s next big ask of California’s state government. The Federal government is likely a dead end, as a bailout of Tesla would likely outrage many Trump and Congressional Republican supporters. However, California might just be persuadable.

IHS Market Report Claims

The IHS Markit report claims, among other things that

  • Tesla’s operations support 51,000 jobs in California, including the 20,000 workers Tesla employs directly in the state.
  • Tesla paid its workers a total of $2.1 billion in wages and equity in FY2017 (no mention as to how that equity was valued or what percentage of total compensation it represents).
  • Tesla “infused” approximately $4.1 billion into the California economy (this apparently includes the wages and equity mentioned above plus payments to California suppliers.
  • Tesla contributed directly $2.0 billion and indirectly $5.1 billion to Gross State Product in 2017.
  • Tesla paid $328 million in taxes directly to state and local governments in California in 2017 and the indirect impact was another $345 million in tax payments.

Merits of the Claims

We will not spend a great deal of time on the merits of these claims. These kinds of reports are notoriously loaded with assumptions that are impossible to prove or disprove. However, we would point out a major flaw in these kinds of economic analysis that are often used to support a Keynesian stimulus approach to economic development by government intervention: they assume that the resources used by a given economic activity would not be employed otherwise.

Economic analysis often uses the term ceteris paribus—all other things being equal—but all other things are not equal. The worker Tesla employed might have found employment elsewhere; it may have even been more stable, safer employment that did not entail payment in Tesla equity, that is subject to some uncertainty as to its ultimate value.

To highlight this point, it may be helpful to consider the economic activity generated by Tesla’s competitors in California. These competitors’ operations are being impaired by Tesla’s sale of deeply subsidized cars in the state. While Tesla’s competitors do not manufacture cars in the state, they account for

  • 1,366 dealerships
  • employing 140,596 jobs (that pay cash),
  • accounting for $8.56 billion in wages,
  • paying $9.38 billion in taxes, and
  • making $50 million of charitable contributions per year.

On a more minor point, the IHS Markit report assumes that the $2.1 billion in “wages” paid to Tesla workers is spent in the California economy. As discussed above, the report includes in these “wages” Tesla equity granted to employees without quantifying what percentage of wages this equity represented. We are skeptical as to how many employees spent their Tesla stock to boost local economic activity.

The Real Point of This “News”

Tesla is getting ready to ask the State of California for a “favor”. Whether it is a major bailout or some additional taxpayer subsidy to help it hang on for a few more quarters only time will tell. As discussed in our article on ZEV Credits (here), Tesla may ask for some reform to that program to produce a more generous subsidy to the company. Musk made his position clear that ZEV subsidies should be increased on an earnings call in 2016 when he reportedly said:

“The California Air Resources Board is being incredibly weak in its application of ZEV credits. The standards are pathetically low. They need to be increased. There’s massive lobbying by the big car companies from increasing the ZEV credit mandate, which they absolutely damn well should. CARB should damn well be ashamed of themselves.”

Will California Cooperate? Maybe. Musk may ultimately raise the specter of Chapter 7 and the loss of the entire enterprise to motivate uncooperative public servants. However, public bailouts of private companies are controversial and governments do not like controversy. Car dealers are not exactly disengaged politically, so any large bailout could encounter some meaningful opposition.

Comments

Last of the Mi… brianshell Sun, 05/20/2018 - 09:12 Permalink

How long have they been in business as an auto manufacturer? And they're already prepping the people of the state of California for their first big TBTF bail out.

The writing is on the wall and only a moron can't see it. Tesla is going to need billions, tens of billions to continue their current operations to say nothing of their liability exposure and even then the real car manufacturers will eventually eat their lunch. Their only hope was to develop a small specialty market. To attempt to mass market like Henry Ford was just insanity. Given time the majors will eat their lunch. It's obvious now they have no talent and are operating on the "cover the next bad pr news with good pr new" management style.

They're done. I've worked for companies like this before and they always go down. They end up spending so much time covering the bad pr that real management is just impossible and the talent continues to drain every week.

Elon is just not a car management guy. He's a one in a million bullshit artist with no clue how to manage a company like TESLA. At this point it's probably impossible to bring in car guys and get it right in time to save the whole fucking thing.

In reply to by brianshell

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shizzledizzle Sat, 05/19/2018 - 18:16 Permalink

Perhaps Elon might dip into the 2.6 billion he connived out of investors before asking tax payers. Negative earnings is the only thing Tesla produces consistently. 

Tom Green Swedish Sat, 05/19/2018 - 18:48 Permalink

Musk and Tesla company aren't going out of business. He has 19 billion dollars and plenty of government officials. And technically he is the space program now. He is a pretty good card up his sleeve.  I did a lot of thinking about this, and although this company has absolutely no means to actually produce a profit they will somehow keep up this charade.  Does anybody know why the stock climbed from 25 to 350 out of nowhere?  Does Putin short his oligarchs? Wasn't Musk one of Trumps "business guys". Now, lets see somebody short it given those facts. 

evokanivo Tom Green Swedish Sat, 05/19/2018 - 19:11 Permalink

What do you mean, "let's see somebody short it"? It is the most shorted stock on the nasdaq. I don't know if it's just rumors or if there's proof of it, but supposedly Musk has purchased a lot of his own stock, using his own stock as collateral. It would make some sense because that would increase the share price, helping him raise money. That means 1) he could actually be forced to liquidate and 2) he might not be that liquid. I don't know how many liquid assets he has outside of TSLA stock - do you? If so, please enlighten me.

In reply to by Tom Green Swedish

Clowns on Acid Tom Green Swedish Sat, 05/19/2018 - 19:18 Permalink

Toms - If there is any "bail out" by CA State ....it will be like GM. The equity goes to ZERO. The bondholders take a haircut, but the TSLA company stays open and employs CA workers, pays the suppliers....etc...all the "benefits" outlined / marketed by the consultant firm are maintained. This is what CH 11 is set up to do.

Its just that the value of Musk's 22 million shares of TSLA go to ZERO. No worries he bought a bunch of TSLA bonds...so he will only take a 30% haircut on those monies.

What Musk is really angling for is to extend the Fed and State tax credits that buyers of his jazzed up golf carts obtain. But the 7500 per car Fed tax credit will be gone after Q3 for TSLA as they presumably exceed the 200,000 car sales limit for tax credit.

Musk has always lied about the future growth, future revenues...and LOL....profits.  But he is running out of tax credits and ergo the future. He is obviously very desperate.

I am so happy that Soros's fund bought $35MM of TSLA bonds...be pleasing to see them take a 35% hair cut.

In reply to by Tom Green Swedish

jcaz Clowns on Acid Sun, 05/20/2018 - 12:49 Permalink

Bingo.

I always chuckle when these snowflakes think that their 12 shares of TSLA will be "safe" in a bailout-  the FIRST thing that happens in any restructure is that the common goes to zero-  that's ZERO, Donnie.  You're the LAST in line, dude- you get NOTHING.

So yeah, go ahead and "hope" for that restructure.  This deal will get taken apart like no one's business- that's why Soros bot the bonds and not the stock.   The ONLY possible value this company has now is the battery factories, which still may go to zero once people start to google what "Thermal Runaway" really means........

In reply to by Clowns on Acid

not dead yet Tom Green Swedish Sun, 05/20/2018 - 05:40 Permalink

Guess you think the stock market is rational. It isn't. You've had lots of respected stock pickers as well as tech dreamers who think Tesla is a high tech company with miracle tech, it isn't and what important tech it has is from outsiders or suppliers, and will be the first trillion dollar company and change the planet. These same clowns think the current valuation is justified, some even say it's too low, because of their "fantastic growth prospects." Tesla is also a favorite among millenials. The largest shareholders are respected funds. Thus it brings in the momentum chasers and the gamers who play long and short or whatever and make the bucks while doing it. Tesla is the most shorted stock on the exchange which makes plenty of shorts vulnerable to squeezes as the big boys with deep pockets give the stock an upward boost and the squeezed sell out driving the price higher as the big boys cash out. Rinse and repeat. Tesla is not the first nor will it be the last stock that keeps going up when it should be going down. History has shown that heavily shorted stocks can keep going up for a long time even years.

Space X is not the only rocket game in town so he does not have a lock on the business. A few years ago he applied to get government business and they told him to piss off. Next thing you know Space X suddenly gets government contracts. At one time there was a bill in CONgress that Space X would be the only outfit doing the governments launch work. Don't know if it passed or not.

In reply to by Tom Green Swedish

RKae Sat, 05/19/2018 - 19:10 Permalink

Someone get rid of that idiot. I want nothing to do with his twisted view of the future... and I refuse to pay for it.

All I want is my old '62 Skylark back.

Automotive "progress" has been laughable.

Spectre Sat, 05/19/2018 - 20:48 Permalink

Me new apparel line is ramping up and will be available in the fall for Tesla owners.  The clothing lines for men will be named "Fireballs" and for your lady friends "Sparkles".  Should be a real hit, priced in the $50 bill area.