Back to the trough for Tesla Motors?

27 09 2011

Fledgling electric automaker Tesla Motors is once again gearing up to ask the federal government for access to low-interest loans. Looks like the first $465 million just wasn’t enough to kick the upstart manufacturer into gear.

They were going to call the Tesla Roadster the Electric Lotus, but it sounded too much like a Prog Rock band name

To those who believe that “public-private partnership” means something other than “subsidies for trendy sectors and kickbacks for the well-connected,” there’s nothing untoward about Tesla’s planned request (though how the recent Solyndra scandal hasn’t opened their eyes is a mystery). Their argument for more spending on cutting-edge companies like Tesla can be persuasive. It typically goes something like this:

Tesla is taking a huge chance on unproven green technology. Their product will benefit all of us in the long run, because their investment in research will lower costs for the entire industry. Because the private sector won’t take a chance on expensive electric technology, it is up to the government to do so in order to protect the environment/create American jobs/promote energy security.

On the surface, the argument seems compelling. But it never addresses why companies aren’t using private funds to develop new technologies–it simply asserts that they do not. This is puzzling, since industry has a long track record of bringing revolutionary products to a mass market. Remember that the horseless carriage itself once seemed like a crazy idea, and earlier investors were likely few and far between. Yet in less than a century, internal combustion-powered vehicles became so commonplace that we practically take them for granted.

Expending capital on research and development is always a risky proposition. Wise companies will only invest where they can reasonably expect to see a return. For generations, however, our leaders have done everything in their power to make it harder for that return to be realized.

This goes far beyond high corporate tax rates: there are a slew of innovation-killing forces at work in America today. Mountains of regulations, political instability, increasingly capricious labor law enforcement, and monetary policies that create, rather than tame, uncertainty–all of these and more add up to create an environment that makes risky technologies with a long development arc but a huge potential payoff (like alternative energy) unattractive to investment.

As much as I respect Tesla’s pioneering spirit, their willingness to turn to federal funding is unacceptable. We do not need to suffer under an economic system where taxpayers back risky gambles on flashy, trendy technology. Instead, we must remove barriers to market entry, eliminate disincentives to long-term investment, and let capital flow to entrepreneurs with bold ideas.

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3 responses

27 09 2011
Goodguy Greg

“This is puzzling, since industry has a long track record of bringing revolutionary products to a mass market.”

What long track record. We haven’t had any big changes we had in the auto industry for the last 100 years. Oh you mean how GM destroyed the EV1 and brought us Hummers? Thats real revolutionary right there.

27 09 2011
Graham Kozak

Thanks for the comment! Some people just can’t resist taking a shot at the dearly departed Hummer…not that I blame you. That aside, I think you may have missed my point.

The development of the automobile 100 years ago was a revolutionary departure from the status quo: horse and human-powered transportation. I’m trying to explain why we have so rarely seen similar revolutionary changes since (though asserting that there have been no big changes in auto tech since the time of the Quadricycle is entirely misguided).

We don’t need to invent a conspiracy to explain why there hasn’t been a mass-marketable electric car when readily visible economic factors do the trick. Perhaps you’ll reevaluate your criticism in light of that clarification.

27 09 2011
KathUsitalo

You stated “industry has a long track record” (not “the auto industry”) so I assumed you meant a range of innovative products, from household goods to communications devices and so on…

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