Tesla CEO Elon Musk talks about the U.S. Department of Energy (DOE) loan that Tesla received once upon a time and more in the second part 2 of an interview he did with leaders from the Tesla Owners of Silicon Valley club.
Tesla Owners of Silicon Valley club leaders recently interviewed Elon and are releasing the interview in a three-part series. I’ve already written about the first part here, and you can watch the second part of the interview in full below (just released today). Naturally, I’m doing a short dive, so keep reading!
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The bulk of the conversation was focused on how Tesla survived during the early days and how it transitioned into what it is now. Along with this, Elon Musk shared a bit more about himself, what he loves, what he hates, and what drives him. The guys cover the Smartcar & Daimler partnership, Roadster development, the U.S. Department of Energy loan Tesla received and why Tesla paid it back early, the fundamental value of Tesla, memes, and so much more. For anyone who loves Tesla, this three-part series is a great look into the mind of Elon Musk as well as the heart and soul of Tesla.
Why Tesla Paid The DOE Loan Back Early
I think covering the loan here is pretty important, because I see a lot of misinformation about it on Twitter. The common complaint is that taxpayers gave Elon Musk the money for Tesla to survive. Yes, the DOE loaned Tesla the money, but it seems that it’s never mentioned that Tesla, not Elon Musk, received the money, paid it back early, and was even penalized for that. If a Tesla fan who knows this history debunks the false narratives, in come the name-calling and weird Elon Musk memes.
Elon Musk provided insight about the loan in the interview to further debunk any misinformation. In 2009, Elon Musk said that Tesla received a non-binding letter of interest from the DOE for the loan. “Now that was not a loan where they just give you $500 million. That was one where you spend the money, you provide invoices, those invoices are provided to the DOE. They then refund you based on the audited expenses that you paid. It’s not like a lump sum type of thing. It’s retroactive — after you spend it.”
Nothing was given for free, Elon explained.
“It would not be possible to use that as advanced capital to make something happen. It can only be used to reimburse expenses that have already taken place with a two- to three-month lag.
“That letter of interest did not become an actual binding document until 2010. And the first money that Tesla received as a reimbursement, I think, was March or April of 2010, by which time the recession had passed. So, if we had needed the money from that loan, Tesla would have gone bankrupt.
“The DOE loan, I think, was helpful as an accelerant, but it was not a life or death thing for Tesla. And, ultimately, the constraints — the problem was that the DOE was second-guessing our business plan and execution, so we were like, ‘Well, we need to change the business plan, because if we keep going in that direction we’re going to die.’”
After changing the business plan, Elon and Tesla explained it to someone at the DOE, which led to a bit more drama.
“They’re like, ‘But the plan is different. You need to stay to the plan.’
“‘Well, if we stay to the plan, we’re going to crash and the company will die. And that’s why we want to change the plan.’”
Tesla could have put the effort in to get the DOE to agree with the new plan, but Elon pointed out that this was taking up a lot of bandwidth to be constantly convincing people at the DOE that the new plan is better than the old one.
“So, after the IPO in 2010, we paid back the DOE loan. We actually had to pay a penalty. There was an early repayment penalty. So we paid back the loan, with interest, plus a repayment penalty. Taxpayers made money on the loan.”
In comparison, Elon noted, taxpayers are still $14 billion down on General Motors, which also received a loan from the DOE. GM, which the current administration hyped up as the leader of the EV market last year, never repaid its loan from American taxpayers.
Tesla Did Not Lobby For The $7,500 Tax Credit
Elon Musk pointed out something else about EV incentives that many don’t know.
“None of the EV incentives that exist, not one of them, was obtained by Tesla. Not one of them. The $7,500 was General Motors. They’re the ones who got that. Tesla had no lobbying power in D.C. at all, but GM had huge lobbying powers. They’re the ones who got the $7,500 tax credit put in place. And Nissan. But we had basically no presence in D.C.” Editor’s note: Just to be clear, this is about the $7,500 for EV buyers. Many Tesla owners — myself included — benefited from this tax credit. What Elon is saying is that Tesla played no part in getting that tax credit put into law. It was lobbyists from major automakers — and also largely the Plug In America electric vehicle advocacy organization (which Elon doesn’t mention) — that got this tax credit enacted. —Zach Shahan
“You’ll certainly hear, like, ‘Tesla and tax credits,’ and I’m like, ‘okay, well, currently the $7,500 tax credit does not apply to Tesla, but it does apply to our competitors. Any company that’s accumulated production below 200,000 cars has a $7,500 tax credit, and Tesla does not because we’ve long ago exceeded the 200,000 car maximum.”
Tesla, Elon said, is at a competitive disadvantage with respect to tax credits. The very thing a lot of critics are complaining about in this regard should, I think, please them. That’s just my personal thought on that matter.
“That is quite a signification when you’re talking about, say, a $40,000 car and a $7,500 tax credit. That’s almost a 20% difference. So, a big deal.”
Elon noted that Tesla’s competitors have materially greater tax advantages than Tesla but it is still thriving. “If you eliminated all EV incentives tomorrow, Tesla’s competitive position would improve significantly.”
Eli Burton, who was among the group interviewing Elon Musk, pointed out something very important. “Tesla did the purpose what the tax credits were for, right? To drive that innovation ramp. You guys just actually did it so fast that the competitors are still using it.”
Elon explained that when they first started Tesla, gas was only under $2 per gallon in California and there were no tax credits. There wasn’t an opportunity for Tesla back then. “When we started Tesla, I should be clear, like, it was with an expectation of success of less than 10%. And the same for SpaceX.”
I think it’s great to hear Elon Musk sharing his thoughts on the early days of Tesla and covering topics that many on Twitter blindly complain about without having any knowledge of the issues at hand.
Now, will many of the critics that follow the political calls to vilify Elon Musk take the time to watch this? I don’t know. Will they believe him? Probably not. But some will learn from these interviews and I think this is important. You can watch the full interview here.
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