In another piece of good news for electric vehicle maker, Tesla Motors, the company announced on Wednesday, May 22, that it has paid off the remainder of its Department of Energy loan, nine years early. The sum of $451.8 million was wired to the DOE, repaying the full loan with interest.
It was only a couple of months ago that the company promised it would pay off the DOE loan five years early, but due to a profitable first quarter and demand for their vehicles beating expectations, the company’s stock has been riding high, which allowed Tesla to raise close to $1 billion via a new stock and note offering. Part of the proceeds of this was used to pay back the government’s loan, and in doing so, marks a win for the company, the government and the American taxpayer.
It’s probably refreshing for Tesla to get out of the way of partisan politics too. The controversy of government loans to clean technology companies was heightened during last year’s election campaign, with Mitt Romney criticizing them and Sarah Palin specifically describing the company as a “loser.” Flippant labeling such as this was easy, especially with companies like Solyndra - a fellow recipient of a DOE loan guarantee – flaming out so spectacularly.
But the political rhetoric of the campaign season made less of the fact that Ford and Nissan also benefited from the Department of Energy’s Advanced Technology Vehicles Manufacturing program too; and in the case of those two companies, it should be noted the loans remain outstanding. That’s fine, they are no doubt compliant with the terms and conditions. But as far as Tesla is concerned, it’s a feather in their cap that they have emerged from under the government’s cloak early. And it’s also demonstrative that the government’s practice of picking winners isn’t always a folly.
Because, whatever happens now, Tesla cannot be called a taxpayers’ rabbit hole. They have come through on their debts, and they can now go about their business independently.
Of course, philosophically, it’s worth debating whether the government should play the role of venture capitalist. Is government really the best entity to decide where to invest? Probably not always. But its also worth debating that if you want to promote clean technologies, the other role government can play is to set the economic environment that allows such companies to thrive; for example, by setting a price on carbon. The reality is, the federal government hasn’t done that, opting instead to invest directly in businesses – and investment always carries risk.
But in any case, overall, the DOE loan program hasn’t been a disaster. The San Francisco Chronicle reports that even accounting for high profile failures – like the aforementioned Solyndra – the $34 billion DOE investment portfolio of which Tesla was a part, was established along with a loan loss reserve of $10 billion; set up to account for the expected failures. In reality, according to the Chronicle, losses to date are just two percent of the loan value – less than $1 billion. In short – much less than feared, and well within what was budgeted for.
That’s not to say that the bar should be set so low that losses are to be expected routinely, but let’s not forget, when the program was created, we were in the midst of a deep recession when investment capital was not exactly abundant. Furthermore, stimulus funds for the economy was probably what kept the country on the right side of depression.
In any case, Tesla comes out on the positive side of the ledger, and where they go now is up to them and their stakeholders. Everybody should applaud the company – believers in EV technology and skeptics alike. Those that believe in the stimulus, and those that don’t. Because everyone should be pleased that the company has chosen to extract itself from the purview of the federal government; that the taxpayer has not lost money on their investment, and that Tesla will now live or die on its own terms.