After posting my reassessment of Elon Musk yesterday, I saw that the initial responses were mostly positive and to the effect that my reading seemed to be balanced and fair. A couple of interesting issues and angles have come to my attention in the day that has followed.
One topic concerns whether the Tesla Model S is quite as great as some initial magazine reviews suggested. Another is the narrative that Tesla could not survive without subsidies, given the alleged phenomenon of "sales dropping to zero" as soon as subsidies end. The third is a rather surprising turn—evidence that Elon Musk has been speaking out against electric vehicle subsidies and that he has been promoting their abolition.
Not so great?
A reader pointed out that Consumer Reports, after initially reviewing the Model S with glowing superlatives was then forced to remove the car from its recommended list in late 2015. The reason was that poor reliability reports were coming in. Things were breaking and needing fixing at a relatively high rate.
I have seen superior assessments of the Model S on safety, performance, buyer experience, total buyer maintenance cost, and service relationship. That is quite a list of superlatives for an upstart company selling an entirely new type of car. It is the safest car on the road. It has the fastest acceleration. In doing all this, it is quiet. Actually, it can swim in flood waters like a James Bond boat (the manufacturer does not recommended making a practice of this though). In the area of service, Tesla employees show up at people's homes to fix the car and then leave.
Reliability strikes me as just the sort of area that would depend most on improvement over time through iterations of experience. Here we have a completely new company with a completely new type of car up against century-old companies building incremental advancements of century-old types of cars (at least in comparing the Model S to conventional luxury sedans). My prediction would be that the reliability issues should be steadily improving as specific issues are identified and fixed and the company learns from experience, redesigns parts, adjusts suppliers, etc. A small-scale version of this phenomenon is why I never buy a new number release of an iPhone, but always wait for the "S" version. Most major engineering issues are introduced with the whole number redesigns and have been eliminated by the time the upgrade iteration arrives. One can prioritize being first and taking on a higher risk of issues, or wait until the earliest adopters have already served as the Guinea Pigs. It is a matter of personal preference.
Evidence quality behind claim of zero sales without subsidies
As for the narratives that no one would buy Tesla cars without subsidies, here's one specific claim from a recent article: "After Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero."
I have not researched or considered any detailed multi-country or up-to-date data on this, but looking only at this one statement, it immediately occurred to me that it is quite common for buyers of higher-end items or capital equipment to be aware of the end or the beginning of major tax or subsidy changes and then time their purchases accordingly. Even much more broadly, sales always rise before a sales-tax increase, then drop off for some time after the change takes effect. There is typically some degree of "sales rush" leading up to such a change followed by a sales drop-off and eventually normalization. The particular time scales depend on the specifics of the product.
This makes me wonder just how much of this "sales dropped to zero" narrative might be an artifact of such normal smart-buyer timing. The only surprising outcome would be if buyers of $100,000 items would delay purchases until after an available discount was set to evaporate. To assess this, the whole data series in each case, including well after the change in subsidy, would have to be analyzed to account for this common factor in sales trend analysis. Or one could omit such analysis, cite figures immediately after the end of the subsidy, and thereby appear to have solid evidence for a subsidy-dependency narrative.
Does the alleged subsidy queen actually want subsidies?
The final issue I found was actually quite surprising. With so many critics painting Musk as a subsidy-seeking corporate welfare queen, I just sort of accepted this as though it must be true. I know he is a deal-maker and seeks out the best opportunities to acquire factory land, for example, and this includes getting the best possible deals from governments. But does he actively seek subsidies? According to the anti-Musk narrative, he must, right?
Just before I found the information below, it had already occurred to me on logical grounds that if some subsidies are of fixed amounts per electric vehicle, which many are, they may well have been LESS important to Tesla than to its competitor electric-vehicle makers (of course, this doesn't address the advantage relative to FF vehicles). A $7,500 subsidy on a $100,000 car (Models S and X) is 7.5% of the purchase price, the equivalent of a couple of options more or less. This same subsidy on a $30,000 car is a 25% discount. True, the latter case would now also apply more to the new Model 3, but this has not been the context for these criticisms in the past.
Just after having this thought, a simple search revealed something I did not expect to see at all:
At a May 2017 earnings call, Musk made the following statements:
In fact, the incentives give us a relative disadvantage. Tesla has succeeded in spite of the incentives not because of them...Tesla's competitive advantage improves as the incentives go away. This continues to be something that is not well understood...
I should perhaps touch again on this whole notion of—it's almost like over the years there's been all these sort of irritating articles like Tesla survives because of government subsidies and tax credits. It drives me crazy. Here's what those fools don't realize. Tesla is not alone in the car industry; all those things would be material if we were the only car company in existence. We are not. There are many car companies. What matters is whether we have a relative advantage in the market.
As Anton Wahlman explained (4 May 2017):
Musk's argument is that the tax subsidies are worth more to Tesla's competitors than to Tesla, and that therefore Tesla would be better off without them, relatively speaking. Musk has made this argument in previous forums before, including on a previous earnings call as I recall, in the context of California's ZEV (zero emissions vehicle) credits, which Tesla is able to sell to other automakers as a purely politically engineered 100% gross margin profit. He made the argument on the 1Q 2017 earnings call again. In that ZEV case, his argument is that Tesla sells these $5,000-a-pop credits to other automakers at a discount, whereas those automakers make and consume some of those $5,000-a-pop credits internally without applying such a discount.
If removing subsidies removes a competitive disadvantage for Tesla, this might easily be written off as simply strategic self-interested promotion once again. However, if we are engaging in a moral assessment of Musk the public figure and claiming that he shamelessly seeks to live off the public purse, his active opposition to electric vehicle subsidies still does not fit all that smoothly into the anti-Musk narrative that I sought to qualify in my recent post. In addition, it cannot have been lost on Musk that the end of EV subsidies would also remove a special price advantage over conventional vehicles, against which Tesla also competes.
Interestingly, Wahlman's article went on to explain why other automakers might also be happy to be free of EV subsidies—they come with expensive strings attached.
Elon Musk apparently looks forward to competing in a subsidy-free world (who knew?). But what about the other automakers? Wouldn't lower subsidies for electric cars mean fewer electric cars sold for them?..It sure would. And the other automakers would love it too!
Why? Because under the current regime, they are manipulated by both the U.S. Federal tax code, as well as by California's ZEV mandate, to develop and produce more electric cars than for which there is true natural free-market demand. And that means billions of dollars in investment for products that they eventually have to dump at negative margins.
In writing my reassessment of Elon Musk, I suspected the anti-Musk narrative to be a bit overdrawn, tending too far toward the negative in an imbalanced way that does not do justice to the reality and tends to dismiss valid positives in the sweep of also-valid negatives. The observations and discoveries above now seem to indicate that the evidence and thinking behind the anti-Musk narrative might be even somewhat weaker than I had been suspecting. I think the ultimate point is to strive for a realistic and nuanced assessment: to call the positives positive and the negatives negative and acknowledge that both streams are present in parallel.