Musk & Tesla: Pulling Up the Drawbridge
By Edward A. Sanchez — Nov. 19, 2024
November 5 has come and gone, and Donald Trump will be the 47th president of the United States, only the second president in more than 120 years to serve two non-consecutive terms. Leading up to, and throughout the 2024 presidential campaign, Elon Musk and Trump formed an unlikely “bromance.” Musk was briefly a part of Trump’s ad hoc “executive council” in his first administration, but this time around, the relationship seems much closer, with Musk staying at Mar-a-Lago, and Trump joking he “can’t get rid of him.”
On the surface, the idea of the head of one of the world’s largest EV makers being close friends with one of the most outspoken opponents of EV subsidies, and one of the most vocal proponents of a “Drill Baby Drill” energy policy is the height of cognitive dissonance. But if you look at the long-game strategy, this is likely a highly nuanced and strategic relationship that Musk probably game-planned long before it became public.
As early as 2013, Musk said he opposed government subsidies for EVs, while at the same time benefitting from them. Hypocritical or shrewd? I’m not here to make a judgment call.
For those claiming Musk and Tesla got a “bailout” along the lines of General Motors and Chrysler: well, not exactly. Yes, Tesla received a $465 million Advanced Technology Vehicle (ATEV) loan in 2009, which it paid back in full in 2013. This is miniscule compared to the nearly $11 billion bailout given to GM. Ford also received a $5.9 billion ATEV loan (to be clear, not a bankruptcy bailout like GM and Chrysler), which it is believed the company paid off in 2022.
Although the cancellation of the latest EV tax credits would temporarily hurt Tesla as well as the rest of the auto industry, their cancellation would comparatively have a minimal impact on Tesla, as it’s already profitable on its EVs, something almost no other manufacturer globally can claim. It also benefits from selling millions of dollars worth of credits to other automakers to be compliant with government Corporate Average Fuel Economy (CAFE) requirements. However, if Trump has his way, those might be thrown out as well.
Tesla is also one of the largest EV charging network operators in North America and globally. The company has already reportedly received 14% of NEVI funds for charging infrastructure. Will the disappearance of those funds hurt Tesla? Yes. But not a “life or death” scenario, like many emerging companies that are relying on NEVI funds for quarter-to-quarter operational costs.
Musk’s calculus is clearly “short-term pain, long-term gain.” There’s little disputing that Tesla, at least in North America and to a great extent in Europe as well, is the 800-lb gorilla in the EV market. Because of its nearly decade-long head-start, it is in an enviable position to be able to comfortably ride out the next four years with or without subsidies and EV tax credits. Other carmakers and charging networks are not in such a favorable position.
Whether you like it or not, Tesla may come out at the end of the next four years even stronger and more dominant than they are today.
(Image courtesy Tesla)
