Analyst: Taxpayers getting raw deal over credits and loans to Tesla, SolarCity

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Taxpayers are getting a raw deal as both Tesla and SolarCity have swept up hundreds of millions in government loan guarantees and credits, according to a leading policy analyst.

The two closely linked companies -- entrepreneur Elon Musk is the largest single share holder in both -- are reportedly close to tying up a $2.8 billion deal that will see the electric car maker take over the solar panel producer and installer.

Reaction to the proposed deal has been mixed, with some experts branding the purchase a bailout, while others see sense in the synergy of the two companies coming together as a one-stop renewable energy firm.

“I’m not a market investor, and so I don’t have any special insight as to the financial wisdom of the arrangement,” energy and environmental analyst Katie Tubb recently told Arizona Business Daily.

Tubb, a policy analyst with the Heritage Foundation’s Thomas A. Roe Institute for Economic Policy Studies, said it is entirely appropriate that Musk chases his stated aim of “accelerating the advent of sustainable energy.”

“The problem is, Musk’s story has mixed business with politics,” she said. “Both Tesla and SolarCity have benefited in the short term from federal and state government policies that pad the bottom line, and Musk has advocated for more.”

While he’s doing what any rational businessman would do, that’s a raw deal for taxpayers and ratepayers who have “footed the bill for loan guarantees, tax credits and net metering agreements.”

Moreover, Tubb argues that these kind of policies make Musk’s vision of the future further away, not closer.

“Targeted subsidies don’t make solar power or electric cars less expensive; they just make more people (taxpayers and ratepayers) pay for it,” she said. “They also equate to crony capitalism for companies that would have been successful even without the handout. In the long term, that’s not a recipe for a thriving industry.”

Again, she did not want to comment on the business aspect of the likely deal or whether it is a bailout, as some commentators have suggested.

“The solar industry needs to prove it can stand on its own feet; it can hardly be called an 'infant' energy technology,” Tubb said. “But right now, the industry as a whole is propped up by federal policies and state policies. One of the biggest problems with these policies is it muddles the difference between truly competitive solar companies and the posers who don’t have a product or business plan that ultimately works.”

Tubb made clear she is not opposed to the solar industry, but that it needs to succeed in a “free market where everyone is playing by the rules.”

“That’s the best for the long-term health of any promising energy technology and especially so for investors and customers,” she said. “I think there are definitely solar companies out there that can succeed.”

The Los Angeles Times, in an article published June 2015, calculated that Tesla and SolarCity had received $4.9 billion in federal and state government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It also includes tax credits and rebates to buyers of solar panels and electric cars.

That figure includes $1.3 billion from the state of Nevada, mostly tax abatements and credits. Tesla is building a giant factory in the state to produce batteries for its electric cars.

SolarCity is to receive $750 million in cash and grants from New York state, where it is building a factory to produce solar panels. Both deals, and the subsidies, are dependent on the companies meeting investment and job targets.

While Musk is the largest single share holder in both Tesla and SolarCity, he is also a first cousin of the solar company’s CEO, Lyndon Rive, and its chief technology officer, Peter Rive.

In a letter to congressional legislators, the Center for the Republic, a conservative grassroots organization, called for an investigation of the Rive brothers, claiming they received a “$128.9 million cumulative compensation package while the company is simultaneously receiving more than half a billion dollars in federal direct grants.” 

The amount of federal grants SolarCity has received is $332 billion, according to Good Jobs First, an organization that tracks federal and state subsidies.

In a blog post, Lyndon Rive denied reports that his compensation was $77 million in 2015.

“I actually earned $275,016,” he said. “The (San Francisco Business Times) story based its number on the stock option grant I received from the SolarCity board in August, but that grant is completely tied to business metrics that will take years to achieve. I have received zero options thus far from the grant.”

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