by Mitch Kokai
Senior Political Analyst, John Locke Foundation
It’s natural to assume the enemy of your enemy is your friend, especially when the enemy in question is big government. So it should come as no surprise that many conservatives have rallied to the side of Elon Musk and his electric-car company, Tesla Motors, in their fights to change state auto-retailing laws so they can sell vehicles directly to consumers, without using franchised auto dealerships.
Bans on direct sales don’t make much sense, and it would be great to have a less regulated automotive market. But it is dangerous to allow Tesla to portray itself as a free-market champion, because the company is actually a prodigious harvester of government favors and handouts.
Tesla’s flagship automobile, the Model S, would not only fail to make money in a free market, it would likely bankrupt any company that tried. As the Los Angeles Times reported, Tesla’s “cars themselves aren’t making the company any money.” A Model S with a typical options package sells for more than $100,000, but that is literally tens of thousands of dollars less than it costs to manufacture and sell.
How, then, does Tesla make its money?
The direct subsidies for purchasers, to encourage them to buy “clean-energy” vehicles, are fairly well-known: a $7,500 federal tax credit and a wide variety of state-level incentive programs. (Tesla has them all listed conveniently here.)
Less well-known are the hidden subsidies that flow directly to Tesla, thanks to “zero-emission vehicle” (ZEV) credits. ZEV credits are a mandate dreamed up by the bureaucrats at the California Air Resources Board (CARB), which requires manufacturers to build and dealers to sell an arbitrary number of “zero-emission” vehicles each year. (Note that these vehicles are actually “zero-emission” only in the unlikely event that the electricity used by the car comes from a zero-emission source — which, of course, would also be heavily subsidized.)