SpaceX CEO Walks a Political Tightrope

SpaceXElon Musk, the CEO of SpaceX, walks a political tightrope each and every day. In addition to running the spaceflight company, Musk also remains in charge of Tesla, the electric car company. Both companies are heavily dependent on the government for their success and survival. SpaceX partners with NASA for spaceflight purposes and Tesla benefits from government tax credits to make its balance sheet work.

Most major businesses require significant interaction with government in order to keep their doors open. All businesses have to follow laws regulating employers and zoning codes. Complying with the law is a cost of doing business. Government mostly is involved in the cost side of the ledger. For SpaceX and Tesla, government is also a major revenue component of their businesses. Without assistance from government sources, neither business would be as lucrative as they now appear.

SpaceX is currently in competition with United Launch Alliance (ULA) for Evolved Expendable Launch Vehicle (EELV) government contracts. These are used primarily for launching military satellites. The two companies would use different rocket systems to send the satellites into orbit. ULA is a joint venture of Boeing and Lockeed Martin. ULA relies on Delta and Atlas V rocket technology for its launches. SpaceX uses its own Falcon 9. The company CEO’s each testified before Congress in March in a hearing to discuss the government contract award.

Tesla receives government benefits in a variety of ways. First, each person who purchases an electric car from the company receives a $7,500 tax credit. In other words, the vehicles are artificially cheaper for those acquiring them based on the government subsidy. Second, Tesla was awarded a $465 million loan from the U.S. Department of Energy at a discounted interest rate. Tesla also receives state government benefits, the most recent example being a $34.7 million tax cut by the State of California. Certain other states, including Colorado and West Virginia, also provide their own income tax credits to those who purchase Tesla vehicles.

The CEO of SpaceX and Tesla walks a political tightrope every day in order to keep his political constituencies happy. If he is seen as favoring one party over another to a large extent, then the stream of government benefits for both companies could be in peril. The CEO of both companies, Elon Musk, is generally known for evenhanded political contributions. When the funds appear to favor Democratic politicians, as was recently the case, then he creates a political problem to address. Both companies also have to contend with regional issues. SpaceX’s competition with ULA potentially takes work away from factories producing ULA rockets, such as a facility in Alabama. Republican Senator Richard Shelby has been critical of SpaceX, in part because a ULA facility in Decatur, Alabama would lose jobs if SpaceX obtains work otherwise available for ULA.

Tesla recently engaged in a political spat in New Jersey over a requirement that its vehicles must be sold through dealerships instead of directly through the manufacturers. Musk is opposed to dealership sales because he says they use vehicle service as a major source of profit and the electric cars do not require the same level of service as cars using gasoline powered internal combustion engines. In other words, the dealers will not want to sell as many of the Tesla cars because of a loss of auto service revenues.

Critics say that companies such as Tesla should rise or fall based on their own merits instead of being propped up with government benefits. Spaceflight companies such as SpaceX no doubt require some amount of government contracts, but they do endeavor to generate private launches as an additional source of revenue. In addition to dealing with the typical business day to day operational issues, the CEO of SpaceX and Tesla must also manage to walk a thusfar profitable political tightrope to keep both companies humming.

By William Costolo

Sources:

Time

US News and World Report

NASA Space Flight

One Response to "SpaceX CEO Walks a Political Tightrope"

  1. Weapon   April 17, 2014 at 1:24 pm

    Just an fyi, Tesla already repaid the loan with interest. As far as the 7.5k tax credit goes, it doesn’t do anything at all. The 7.5k that the consumer saves through tax credits is not a saving at all. The reason is because the car value instantly depreciates 7.5k. There is no savings.

    Also, in the case of the California 34.7 million tax credit. It is not what you think it is. California is one of the 2 states in the country that taxes purchasing of manufacturing equipment. (So essentially, every manufacturer in the US outside of California gives a tax credit for all manufacturing equipment). California only gives the tax credit to purchase of “green” equipment and green companies. So to say that Tesla gets favoritism here is silly, if they had to pay taxes on equipment, they wouldn’t have opened a factory in California to begin with.

    And I also will point out that the reality is in modern day in age, every company in existences is dependent on government directly or indirectly. From tax credit packages given out to businesses. To the fact that for the last few decades, government spending makes up 30-40% of the GDP. It is simply impossible in today’s day in age for businesses to not be reliant on government.

    In the case of SpaceX, they also do private launches. They recently launched a telecom satellite for example. And one way or the other, NASA will deal with SpaceX simply because they are cheaper. The only thing keeping ULA launching is the fact that they have a lot of lobbying power. In terms of cost, SpaceX launches at fraction of the cost they do.

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