Tesla's problems are well known. In March, Tesla was forced to recall 123,000 Model S Sedans – the most ever in its history. Elon Musk himself admitted during an interview with CBS News that excessive automation in the production of Tesla's Model 3s made the process needlessly complex, leading to missed production targets. Just this month, a Model S spontaneously caught fire with its driver still in the car. All these issues and more should raise questions about Tesla's ability to consistently deliver quality products. Yet, depending on whom you ask, investor confidence in Tesla remains high. Why?
A recent Quartz piece proposes an answer: SpaceX. In February, SpaceX's highly publicized launch of a Tesla Roadster on top of SpaceX's Falcon Heavy, the most powerful rocket in the world, was a public relations dream for the company. Fortunately for Tesla, the goodwill bought by the successful launch explains why investors are so eager to, as the author of the piece puts it, "overlook sins that would fell other companies." In other words, to investors, what Tesla lacks in its execution, SpaceX more than makes up for.
But there is good reason to be skeptical about SpaceX's track record, too. A closer examination of the company reveals that even its best known successes have been overstated. Given that its continued operations are sustained in large part from government subsidies, any predictions that Tesla's success will mirror that of SpaceX should be taken with a grain of salt.
Though SpaceX has undoubtedly renewed public interest in space exploration, both the company and the media tend to overstate its accomplishments to date. Not mentioned in the triumphant pieces about the Falcon Heavy launch was the fact that Musk originally announced that it would take place in 2013 or 2014. Also conspicuously absent was Musk's uncertainty about the viability of the launch; when asked, he joked that what would take place would either be "an exciting success or an exciting failure." When the Falcon Heavy finally launched in February, after years of delays, columnists at both the Wall Street Journal and the American Thinker highlighted concerns that neither SpaceX nor the U.S. government would ever find much use for the rocket.
The successful Falcon Heavy launch was also enough to wipe the numerous SpaceX launch failures that preceded it from public memory. The Washington Post chronicled several of these incidents last year. In November 2017, a SpaceX engine exploded during a test at a Texas facility. Before that, in September 2016, a Falcon 9 exploded while on the launchpad during a test. And nearly a year before that, another Falcon 9 blew up just a few minutes after liftoff.
None of these incidents is damning on its own, but they do raise concerns when you consider that SpaceX is sustained by various forms of government favoritism. According to the L.A. Times, Tesla, SolarCity Corp., and SpaceX have benefited massively from government privileges, to the tune of $4.9 billion. But while Tesla and SolarCity are public and therefore regularly disclose their financials, SpaceX is privately held and thus under no obligation to report on its financial performance. Subsidies aside, SpaceX takes a substantial amount from its contracts with NASA and the U.S. Air Force, which are worth $5.5 billion.
Economists often point out that when companies are supported by taxpayer dollars, they are partially insulated from the costs of their failures. Because executives don't bear the full risk of their ventures, they're more likely to make decisions they might not otherwise make. It is entirely possible that the $20 million SpaceX received from Texas has led the company to pursue unprofitable ventures that in its absence would have seemed less attractive.
Compare that figure to the $1.3 billion Tesla secured from Nevada, in addition to California's commitment of $126 million in subsidies for the development of energy storage technology, and it becomes clear why it doesn't make sense to project SpaceX's success onto Tesla.
The connection between SpaceX and Tesla can be summed up in two words: Elon Musk. His charisma, access to capital, and willingness to pursue his passions, however far-fetched, do a lot of heavy lifting in making the business case for continued confidence in Tesla. But as the Mercury News notes, "Tesla lists its dependence on Musk as a risk factor in securities filings, and some experts and short sellers have raised concerns about the amount of attention he devotes to other ventures" like SpaceX.
Perhaps there is a case to be made for Tesla's viability in the long term, but Tesla's operations and output deserve more scrutiny. SpaceX's record, with numerous problems of its own, simply won't do as a stand-in.
Tammy Winter is a freelance author and former program associate for the Mercatus Center at George Mason University. She currently works at Stand Together and can be reached at email@example.com.