Tesla’s Costly Lesson: The Pitfalls of Public Funding for Private Development

Public funding for private development projects often proves to be a misguided endeavor, as evidenced by recent revelations highlighted in a Wall Street Journal report. Even the wealthiest individuals, it seems, are not immune to the allure of utilizing other people’s money, and their ability to steward it wisely is questionable at best.

The report delves into the case of a solar panel factory in Buffalo, New York, operated by SolarCity, a company co-founded by renowned entrepreneur Elon Musk, who also serves as the CEO of Tesla. When the factory was announced in 2013, then-Governor Andrew Cuomo stepped in to offer assistance, with hopes of revitalizing Buffalo as a thriving manufacturing hub. The initial plan was to foster the growth of several small startups in promising economic niches.

Unfortunately, the state’s ambitions fell short, as it committed its entire budget to a single project. An astounding $750 million was pledged to construct a colossal 1.2 million-square-foot factory, leased to SolarCity for a mere $1 per year. Additionally, an additional $240 million was allocated for purchasing manufacturing equipment. The state even granted the facility a property tax exemption for its first decade, estimated to save SolarCity a staggering $260 million.

During that time, the federal government also provided generous support, covering 30 percent of solar installations costs through grants and tax credits. In 2015 alone, SolarCity reported receiving $497.5 million in direct grants, and some estimates suggest the total payout could have reached an astronomical $1.5 billion.

In exchange for these substantial investments, officials anticipated the Buffalo factory to generate up to 5,000 jobs and attract further development to the region. Elon Musk himself made grand promises, declaring that the factory would be producing enough products to cover 1,000 roofs per week by 2020. However, a decade later, the factory falls woefully short, averaging a mere 21 installations per week. Regrettably, the only new business that emerged in the area was a solitary coffee shop. While Tesla reported creating 1,700 jobs, it is crucial to note that the majority of these positions are unrelated to solar projects. Furthermore, the terms of the deal have been adjusted 12 times within an eight-year period, with lowered job requirements and extended deadlines.

Defending the project, a spokesperson for Cuomo stated that the factory site currently boasts more jobs than when it was an empty lot that once housed a steel mill. However, it is debatable whether spending $1 billion for 1,700 mostly unrelated jobs can be considered a significant improvement.

E.J. McMahon, founding senior fellow of the fiscally conservative Empire Center for Public Policy, did not mince words when referring to the Buffalo project as potentially “the single biggest economic development boondoggle in American history.” He further criticized the state’s involvement in the project, stating that it became a direct investor under the worst possible terms.

This disastrous endeavor is not the first sign of trouble. In 2016, Tesla acquired SolarCity, which was drowning in over $3 billion of debt. In 2018, Oregon demanded a reimbursement of $13 million after discovering that SolarCity, now known as Tesla Energy, had exaggerated the costs of multiple projects to qualify for tax credits. Subsequently, New York auditors wrote off $883.8 million in state investment, acknowledging that the direct financial benefits associated with owning the manufacturing facility and equipment were unlikely to materialize.

The exorbitant expenditure on a private company is disheartening for numerous reasons, particularly considering Musk’s previous rhetoric on subsidies. He eloquently expressed concerns about taxpayer funding for private projects, stating in 2021 that “the role of the government should be that of a referee, but not a player on the field.” Paradoxically, Musk and his companies have reaped substantial benefits from government largesse, receiving billions of dollars in subsidies since 2010.

Although Musk’s actions may disappoint, his rhetoric aligns with reality: “Government should try to get out of the way and not impede progress.” If only policymakers would heed these words of wisdom. The cautionary tale of the Buffalo project serves as a vivid reminder of the pitfalls of public funding for private development and the need for more prudent allocation of taxpayer resources.