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 tammy.a.winter@gmail.com.
