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Taxpayer Subsidies Helped Tesla Motors, So Why Does Elon Musk Slam Them?

Silicon Valley has always relied on the government to jump-start innovative businesses—no matter how much it clings to the go-it-alone narrative.

Musk shows off the Roadster at a trade show.

It's rush hour in Silicon Valley, and the techies on Highway 101 are shooting me laser-beam stares of envy. Beneath the floorboard of my Tesla Model S, a liquid-cooled pack of 7,000 laptop batteries propels me down the carpool lane at a hushed 65 miles per hour. Then traffic grinds to a halt, and I'm stuck trying to merge onto an exit ramp as Benzes and BMWs whip past. It's the excuse I'm waiting for: I punch the throttle, and the Model S rockets back up to speed so fast that I worry about flying off the road—a silly fear, it turns out, because the car corners like a barn swallow. "And there you go," says Tina, my beaming Tesla sales rep. "Takeoff!"

Every bit as practical as a Volvo (rear-facing trundle seat!) and sexier than an Aston Martin, the Model S isn't just the world's greatest electric car—it's arguably the world's greatest car, period. The curmudgeons at Consumer Reports call the seven-seater the best vehicle they've ever tested, and that's after docking it considerable points for only—only!—being able to travel 265 miles on a charge. The first mass-market electric car designed from scratch, it sports huge trunks in the rear and under the hood, an incredibly low center of gravity, and the ability to hit 60 mph in 4.2 seconds. Plus you can recharge it for the price of a burrito. Named car of the year by Motor Trend, the Model S has recharged Tesla as well. In May, the company announced that it had repaid, nine years early, a $465 million loan it had received from the Department of Energy.

Tesla posted its first quarterly profit the same month, and by mid-July the share price of the decade-old Palo Alto-based carmaker had more than doubled. The buzz in the Valley is that Tesla has in the Model S something with the disruptive potential of the iPhone—and in its CEO, Elon Musk, the next Steve Jobs. "Individuals come along very rarely that are both as creative and driven as that," says Jim Motavalli, who writes for the New York Times' Wheels blog. "Musk is not going to settle for a product that is good enough for the marketplace. He wants something that is insanely great."

Musk, who is 42, certainly plays the role well enough. The New Yorker's Tad Friend has noted how his "curious apparel"—black half-boots and a gray hacking jacket—along with his "Pee-wee haircut, glowing blue-green eyes, South African accent (he was born in Pretoria), and manifest determination to save the world—single-handedly, if necessary—conspires to make him seem somewhat alien."

Fittingly, it turns out, since in addition to Zip2 and PayPal, both of which Musk cofounded before he hit 30, his entrepreneurial portfolio includes Space Exploration Technologies (SpaceX), a company that aims to colonize Mars—in 2008, it landed a $1.6 billion contract to resupply the International Space Station. He is also chairman and top shareholder of SolarCity, a solar finance and installation firm. There's a kind of futuristic synergy at play here: If we all buy Teslas and charge them via a distributed solar-panel network, then maybe we can survive the effects of global warming long enough to populate the red planet.

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Almost as audacious is Musk's determination to sell direct to customers, circumventing the entrenched dealer-franchise model of auto sales. To do it, he'll have to get a lot of state and local laws changed against the will of the dealers and their powerful trade groups. "He's just determined to do it his own way," Bill Wolters, head of the Texas Automobile Dealers Association, told NPR.

And then there was Musk's public throwdown with the New York Times' Jon Broder, who wrote in a review that the Model S had died during his winter test-drive. In a wonky rebuttal that captivated the business world, Musk used data from the test car's onboard computer to savage Broder's "fake" review and claim that he fabricated details. (The Times stood by its reporter's integrity, if not his precision with the facts.)

Musk's latest Jetsons-esque idea is the "hyperloop," a bullet tube of sorts that would get you from San Francisco to Los Angeles in a half-hour. "My motivation in all of my companies is to be involved in something that I thought would have a significant impact," Musk told Charlie Rose in 2011. "When I was in college, there were three areas that I thought would most affect the world: One was the internet, the other was sustainable energy—both production and consumption—and the third one was space exploration, particularly making life interplanetary. As things have turned out, I have been able to be involved in all three."

"Elon is a paragon of enthusiasm, good humor, and curiosity—a Renaissance man in an era that needs them," the director Jon Favreau wrote in Time a couple of years back, after using his friend as a model for Robert Downey Jr.'s eccentric industrialist in Iron Man. (Musk briefly plays himself in the sequel.)

Yet Musk is also emblematic of a curious strain of denial that seems to infect Silicon Valley as a whole. His breakaway success is a powerful reminder of how the public sector can turbocharge innovation. It brings to mind the government-backed $500,000 investment in a young startup known as Apple—and the federal grants that funded the prototype for Google. But rather than becoming poster boys for public-private partnership, Musk and other Valley entrepreneurs have gone out of their way to distance themselves from their patron. Shortly after paying off his $465 million loan, Musk proclaimed that government should no longer provide such assistance. A "carbon tax would be a better way," he tweeted, adding: "Yes, am arguing against subsidies and in favor of a tax on the end bad created. Market will then achieve best solution."

It's perhaps not hard to understand Musk's temptation to bite the hand that feeds him, given all the flak he took from conservatives over his Department of Energy loan. On the campaign trail, Mitt Romney branded Tesla a "loser" and compared it to the bankrupt solar firm Solyndra. (That Musk was an Obama supporter probably didn't help.) Sarah Palin slammed the company from the sidelines as a "manifestation of the administration's crony capitalism." Yet Musk has gone beyond his detractors' argument that the government shouldn't be "picking winners." "Technically, I 'got rich' from Zip2 & PayPal w zero govt anything," he tweeted in May, and "put 100% of that into SpaceX, Tesla & SolarCity." Tesla "would still be around" with or without the DOE loan, he told Popular Mechanics last year. "We were bailed in, not bailed out."

If you're an entrepreneur like Elon Musk, "you will take the money where you can get it, but at the same time believe as a matter of faith that it's entrepreneurship and technology that are the sources of social change, not the state," says Fred Turner, a Stanford professor who wrote the book From Counterculture to Cyberculture. "It is not quite self-delusion, but there is a habit of thinking of oneself as a free-standing, independent agent, and of not acknowledging the subsidies that one received. And this goes on all the time in the Valley."

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