Does Elon Musk's Tesla Motors Need Uncle Sam to Survive?

Elon Musk has spent some of the last week responding to an LA Times article that said he has used government subsidies to build his solar, rocket, and electric-vehicle empire. Specifically, the article points to $4.9 billion in support given to his companies that allowed him to build manufacturing plants and conduct research. Musk fired back on CNBC early this week by saying that the article mischaracterized his companies, and that "none of the incentives are necessary, but they are all helpful."

While both sides have their points, this is a good time to understand how the government is helping Musk, how long that help will continue, and what it means for investors in Tesla Motors (TSLA -1.92%).

Fair is fair: Musk gets a lot from the government
The LA Times article was fairly detailed in outlining the subsidies Musk gets from the government. Below, I split out the incentives that Tesla Motors specifically has received.

Source: LA Times article, "Elon Musk's growing empire is fueled by $4.9 billion in government subsidies."

There are a number of ways to look at these subsidies. Some are state subsidies for building manufacturing plants -- something many companies get. Others are tax credits or environmental credits that Musk takes advantage of, but weren't directly created for him specifically.

Business is business
In the case of the Gigafactory incentives, Musk had multiple states bidding to become the home of the high-profile battery factory. The $1.3 billion in incentives and tax breaks Tesla Motors received may have been more than most companies get, but his tactics were similar to what any manufacturing company would do when trying to site a project. 

Environmental and tax rebates have also helped, but the impact is a little difficult to define. In theory, Tesla could have either raised more capital, or raised prices on the Model S to make up for the lost revenue if these subsidies didn't exist. Would a Model S buyer really scoff at a $7,500 price increase on a $90,000 car? 

But the question investors should be asking is whether Musk and Tesla Motors would be where they are today without government help. That could tell us whether or not this business model is built to last, or built as a house of cards.

Would Tesla Motors exist without the government?
I'll start with the $517 million Tesla has received from selling environmental credits. This money has definitely improved the company's finances, and without that money, it would have needed about $500 million more from debt or equity investors, likely diluting the stock.

But it's not funding that makes Tesla's cars more attractive versus competitors, or strategically changes the company's position in the market. No doubt it has helped, but the money could have come from somewhere else if Tesla needed it. 

The Gigafactory would have likely gotten hundreds of millions in incentives no matter in which state it was built, and tax and infrastructure benefits are commonplace when a company talks about bringing thousands of jobs to an area. Again, this money could have been raised elsewhere if Musk needed to fund the project through other means.

Let's look at the impact that money could have on operations, though. For argument's sake, let's spread that $1.3 billion over 10 years, and on Tesla's projected 500,000 vehicle production annually when the plant is running at full steam. That's a subsidy of $260 per vehicle. It's helpful, but probably not nearly enough to make a car competitive in today's market.

The same goes for Federal and state rebates for electric vehicles, which help sales; but the Model S would have sold well even before those subsidies. And with the federal tax credit sunsetting for Tesla Motors in the next few years, its benefits are running out. 

Battery storage, on the other hand, is almost entirely reliant on the government today. Tesla has taken advantage of mandates in California to install energy storage, and residential energy storage makes little financial sense today. The jury is out on whether Tesla Motors needs subsidies for energy storage, or if the business will even be viable in the way Elon Musk hopes. I chalk up energy storage subsidies and any business model development as "too early to tell."

Musk benefits more than most
I think Musk has separated his business from others in the amount of subsidies he was able to extract from Nevada for building a manufacturing plant. States were almost tripping over themselves to get a high-profile project like the Gigafactory, and Musk used that leverage to his advantage; but it's nothing any other business owner wouldn't do. 

Overall, government subsidies have definitely helped Tesla and its shareholders, but it didn't make Tesla Motors viable in a place where it otherwise would not have been. The company may have needed more funding from either debt markets or the sale of more stock without some of these subsidies, but the business would still be around without them. In this case, I have to agree that subsidies were helpful, but are not what made Tesla Motors successful.