Economy & Business

Tesla’s Success Is the Product of a Healthy Entrepreneurial Culture

Tesla Inc CEO Elon Musk attends an opening ceremony for Tesla China-made Model Y program in Shanghai, China January 7, 2020. (Aly Song/Reuters)
Malign Elon Musk all you want — his company’s growth reflects well on America’s business climate.

AQuartz headline from 2017: “Republican’s [sic] tax reform bill is dimming the dream of electric cars for everyone.”

A Reuters headline from yesterday: “Tesla’s market value eclipses GM and Ford — combined!” An exclamation point in a headline — Reuters is excited!

Elon Musk is the great American innovator for whom no one seems very much inclined to cheer, least of all traditionally pro-business conservatives, who sniff at the greenie-weenie cultural flavor of electric cars, detest Silicon Valley and practically everybody associated with it except Peter Thiel, and can frequently be heard to complain that Tesla would not amount to a hill of fashionable beans without the tax incentives, up to $7,500 a year, that were offered to buyers of electric cars up until the 2017 Republican tax bill began to phase them out.

The smart people were sure that was going to kneecap Tesla. From the Quartz writeup:

“That will stop any electric vehicle market in the U.S., apart from sales of the highly expensive Tesla Model S,” Xavier Mosquet of Boston Consulting Group said in Automotive News. “There’s no Tesla 3, no Bolt, no Leaf in a market without incentives.”

Consumers respond to incentives, and the change in the tax law may have pulled forward some sales: Though Nissan, for example, sold more Leaf electric cars in the United States in 2019 than it did in 2017, it sold fewer than it did in 2018. But all three of those years are well down from the Leaf’s peak sales in the United States — not because Americans are buying fewer electric cars, but because they are buying more of them. The Leaf, an early entrant into the market, has met with more competition as Tesla broadened its offerings and powerhouses such as BMW got into the market. Tesla sold ten times as many Model 3 cars in 2018 as Nissan sold Leafs. And, as Neil Winton put it in Forbes, “In Europe, the Model 3 has been nothing less than a sensation, going from zero in 2018 to 63,362 in the first 9 months and the top of the sales league.” BMW had enough success with its i3 that it is accelerating plans to electrify much of its lineup. There’s more than tax incentives at work there.

One of the misunderstood aspects of the tax subsidy for electric vehicles is that Elon Musk and others at Tesla have been critical of them on the grounds that they put the firm at a disadvantage relative to many of its competitors. Tesla built its business selling expensive cars to rich guys who aren’t waiting around for a $7,500 tax refund, and it was so successful at doing so that it fast approached the 200,000-unit sales threshold at which the tax credit would have been phased out, anyway. Though Xavier Mosquet of Boston Consulting Group may have been wrong that ending the tax credit would end the electric-vehicle market, the incentive surely was more important to people trying to sell Chevy Volts than to those selling $100,000-plus luxury cars.

But high-end rides are a less critical part of Tesla’s business than they once were. People rolled their eyes when Musk announced that a new factory in China would start producing Model 3s only a year after breaking ground on the new facility, remembering Musk’s habit of making big promises with only a vague notion of how to deliver on them. But Tesla delivered on the Model 3, and the same factory will produce the Model Y both for the Chinese market and for export. And if you think that Tesla is chasing cheap labor in China, it is also building a new factory in Germany.

The grumbling from the right about Tesla was never about the tax credit — Donald Trump’s Republican party is not exactly what you’d call doctrinaire on the question of free enterprise, and Republicans have long been more than willing to shunt vast streams of money down various corporate-welfare ratholes from farm policy to steel protectionism to the Export-Import Bank. Haters, as the proverb says, gonna hate. This was always about culture.

And the culture matters. I do not know whether Tesla will thrive or fade, whether Elon Musk is going to turn into a full-blown weed-addled Bond villain or be remembered as one of the greatest industrialists of his time. And I don’t much care. What I do care about is that culture. Elon Musk was already rich enough to buy a yacht and a fleet of Rolls Royces and spend the rest of his days entertaining himself in high style. Instead, he helped to start a new car company from scratch, that company is today valued at more than Ford and GM combined — and it makes some very cool cars. The United States still is a place where an immigrant with big ideas can say, “Let’s start a brand-new car company that’s completely different from what’s come before, and maybe launch some rockets into space, and build a hyperloop, and develop brain-computer interfaces, and try some other stuff, too” — and then do it. Will it all work? Is it all good? Of course not. But Tesla wasn’t magicked into being — it’s what happens when you have a culture that values risk and innovation, understands the necessary role of failure, and yokes capital to brainpower.

Carp all you like — that’s something worth having.

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