DoE Lost Billions in Deal with Tesla

An article on Slate.com has basically claimed that the government lost more money investing in Tesla than it did in Solyndra. A bold statement considering that Solyndra defaulted on its loan, and Tesla has already paid their loan off, nine years early, and with interest; but here is the reasoning.

In 2009 the global financial crisis was still in full affect. General Motors and Chrysler were heading towards bankruptcy and Tesla had suffered a year of layoffs, cancelled orders, and record losses. The US Department of Energy came to Tesla’s rescue with an offer to lend the company $465 million at incredibly low interest rates. Four years later and Tesla is a roaring success. Valued at more than $12 billion on Wall Street it offers a sharp contrast to Solyndra.

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The DoE invested in Solyndra to the tune of $528 million, yet Solyndra failed to keep its costs down and eventually dissolved, leaving the DoE $528 million out of pocket. Tesla on the other hand paid their entire $465 million loan back with an additional interest of $12 million, on the face of it the DoE are $12 million dollars up, yet in reality they lost potentially billions of dollars in this deal.

The problem is that the feds had Tesla over a barrel and they didn’t use that position to negotiate a proper deal, a deal that other venture capitalist companies would certainly have made, a deal that reflected the risk that the DoE was making when it made the investment. At the time Tesla estimated that a loan from a venture capitalist would charge interest rates of 30-40%, so they were desperate to receive the federal loan at 3-4%, but the DoE did not take advantage.

The government earned a 2.6% return on its investment, yet Elon Musk, who also invested in Tesla at the beginning, earned more than a 3,500% return. The difference being, he negotiated to convert his $38 million loan into stocks in the company, which are now worth $1.4 billion.

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Just how many billions could the government have earned if it had demanded stock options?

The DoE has defended their decision to not request stock in Tesla, saying that “the loan program wasn’t intended to generate profit; the goal of the program is to provide affordable financing so that America’s entrepreneurs and innovators can build a strong, thriving and growing clean energy industry in the United States.”

By. James  Burgess of Oilprice.com