In 2009, as the financial crisis raged and General Motors and Chrysler plunged toward bankruptcy, Tesla Motors faced a seemingly impossible task: raising half a billion dollars to build an electric-car factory.
Tesla had just staggered through a year of layoffs, canceled orders, and record losses. Then suddenly, salvation. The US Department of Energy offered to lend the company $465 million at rock-bottom interest rates.
Four years later, Tesla Motors is the toast of Wall Street, giving the company a market value topping $12 billion. And in sharp contrast to Solyndra, the solar panel maker that defaulted on its $528 million loan from the Energy Departtment, Tesla last week paid the government back early, with interest.
Yet despite all the public celebration, both Solyndra and Tesla stand as warnings of the dangers in deputizing bureaucrats to play bankers and venture capitalists. In both loans, the government walked away laughably undercompensated for the risk it accepted in the startup companies. In fact, the Tesla deal was arguably far more costly for America than the Solyndra fiasco.
Making venture capital–style investments in risky companies — without demanding venture capital–style compensation in return — can end up costing taxpayers.
Today, the Energy Department defends the massive discount it offered as perfectly appropriate. “The loan program wasn’t intended to generate profit; the goal of the program is to provide affordable financing so that America’s entrepreneurs and innovators can build a strong, thriving and growing clean energy industry,” says a department spokeswoman.
At a bare minimum, the Department of Energy could have demanded part of the company in exchange for its loan — an 11% share would be worth $1.4 billion to taxpayers today. Tesla’s desperate need for cash gave the feds the power to demand options on half the company’s stock, or more.
Slate.com