A record run for Tesla Inc. shares Monday tipped the electric-car maker to surpass Ford Motor Co. in market capitalization and become the No. 2 car company in the U.S.
Tesla TSLA, +7.27% stock rose 7.3% to close at a record $298.52. The shares traded as high as $299, establishing a new intraday record as well. The stock was the best-performing on the Nasdaq-100.
The upward march for the stock put Tesla’s market cap around $48.7 billion vs. Ford’s F, -1.72% $44.6 billion. General Motors Co. GM, -3.37% is the largest U.S. car maker by market capitalization, which around $51.2 billion.
The great thing about the manic US stock market is its willingness to inflate the future and thus own it.
By contrast, does anyone even recall that Kevin Rudd tried to help re-engineer Australian vehicle assembly along similar lines? I’m not a great fan of “picking winners” but a bit of industry policy can go a long way at the right time. Of course the initiative was condemned by all of the usual suspects.
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Yet it’s a fact that Tesla attained market leadership in part owing to public policy, via Forbes:
So how is it that a newcomer can revolutionize the car industry like this? Tax sure comes into play. Since the inception of corporate tax policy there have been debates about whether taxes should be used to incent behaviors. Regardless of how you feel about the government’s involvement, Tesla is one example of how taxpayer support has powered a company’s innovation.
The U.S. government has put money into the auto and new energy industries to promote R&D and innovation. In the case of Tesla, this meant a $465 million loan from the Department of Energy in 2009. For a while it seemed that some of these programs were a sucker’s bet, with companies going bust, defaulting on payments or producing nothing of note. Tesla is a darling of the program, however, having repaid its loan nine years early. Obviously the company’s success is based on a lot of things, but the U.S. government loan played a big role in helping get this firm off the ground. In this way, the government almost acts like a venture capitalist, making new energy companies viable when private investment wouldn’t have been enough.
On top of the government loan to support the launch of the Tesla Motors company, incentives and rebates from both federal and certain states governments have helped fuel new car sales. Every car purchased in the U.S. qualifies for a federal tax credit to the buyer of $7500. A few states provide additional income tax credits, including $6000 in Colorado and up to $7500 in West Virginia. Other states eliminate sales tax on electric vehicles. Additional government incentives are offered by some state environmental agencies – for example, a $2500 incentive in California, or $4000 in Illinois. Some local jurisdictions sweeten the deal further for electric car drivers with things like free parking and HOV lane use. The ability to sell clean energy credits – such as those for zero emission vehicles (ZEV), greenhouse gas emission (GHG) and others – also helps support Tesla’s financials.
In Straya, the idiot Coalition refused to cough up a lousy $500 million to keep the industry here at all before panicking and giving $80bn away in a subs deal to buy a few Adelaide jobs for displaced workers. And let’s not forget the Adani coal white elephant!
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
