University of Houston economist Craig Pirrong is not impressed by Elon Musk’s subsidy-reliant electric car company, and he’s less impressed by Musk’s bid to bail out his faltering solar company.
“Musk has made a living off of suckers,” Pirrong wrote on his blog. “Suckers in government … who have lavished huge subsidies based the dubious environmental benefits of electric vehicles.”
“Suckers enamored with the technology and performance of Tesla vehicles–despite the questions surrounding Tesla’s ability to produce those vehicles,” he added.
“To keep the suckers coming, Musk has to perpetuate his image as the Great and Powerful Oz,” he wrote. “A major fail–like the bankruptcy of Solar City–threatens to pull back the curtain and demolish that image. Musk needs to prevent that from happening. He needs to buy time, and to buy time, he is having Tesla buy Solar City.”
Pirrong is referring to Musk’s plan to use his electric car company, Tesla, to buy out SolarCity, where he’s the chairman and largest shareholder. The deal has already sent Tesla’s stock crashing since SolarCity is in dire financial straits.
Tesla sold the SolarCity buyout as their attempt to “complete the picture” of the company’s mission to bring green technologies to market. The press release uses a lot of vague terms popular with corporate environmentalists and does nothing to address the financial concerns of taking on a solar company that’s hemorrhaging money.
Tesla said it will become the “only vertically integrated energy company offering end-to-end clean energy products to our customers” once it acquires SolarCity.
Pirrong had some harsh words for Tesla’s attempt to spin the SolarCity buy in a positive light.
“Desperate times call for desperate measures,” he wrote. “The proposed purchase of Solar City reeks of desperation, because it facially makes no business sense, and is explicable only as a way to keep a con alive.”
Musks’ announcement already sent shockwaves through the market, causing Tesla’s stock value to crumble while boosting SolarCity’s stocks. The deal also sparked ethical concerns since Musk is the main investor in both companies and is blood relatives with board members at both firms.
“Both Solar City and Tesla rely on government subsidies, and crucially, on very dodgy financing models and questionable accounting,” Pirrong wrote.
“Buying Solar City exacerbates the Tesla cash bleeding problem, rather than ameliorating it: the mating of hemophiliacs is unlikely to turn out well,” he wrote.
“This move looks very short sighted, and it almost certainly is,” he stated. “But Musk is doing it because he needs to address very pressing immediate concerns, and he’ll worry about the future ramifications when the future comes.”
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