Hacker News Reader

Comment by nicholassmith | Hacker News Reader

Governments for the most part can take long term(ish) views on things, whereas other investors might be more bullish about seeing a return a lot quicker, for better or for worse. Even traditional bank based investment wouldn't have worked, so it's unlikely something like Tesla would be able to get off the ground and get running.

If Tesla does succeed the US Government gets a nice feather in the cap as well, if it goes horrifyingly wrong then, well, there's already a couple of trillion in the hole, what's another half a billion between friends.

View on HN

Note that funding for such things used to come from individuals who could easily buy shares.

Univac for instance, started in just this way, selling shares for a few dollars apiece.

In these times, however, lawyers and government have strangled such bootstrap methods.

Whether Tesla is a success or not, that the govt was needed indicates a failure in some other part of the system.

I'd say it doesn't necessarily indicate failure in part of the system, just a significantly different set of priorities for investors and the global economy. Investors seem in general more interested in quick returns (there's exceptions, Amazon for instance), rather than putting money in for a slow burn and contributing toward a company.

This isn't necessarily just down to investors being money machines, but in part due to the fact that the global economy is improving but still massively fragile, even if that $500m was split 5 ways, you'd have to convince an investor that $100m in a business that could go belly up is a safe bet, even though the economy could rapidly go wrong and ruin luxury items like electric cars.

Plus lets be honest, if you play it on the investment game there's every risk people will buy in, get cold feet and dump the stock pretty quick, ruining confidence in the business and creating a negative public perception.

I will tack on at the end, I'm not an economist so I could be way, way off base.

Lawyers and governments haven't strangled those bootstrapping methods - scammers have.

Selling a few shares at a time to individuals is a really expensive and time consuming way of raising money, so the only reason to do it is if you can't raise money from larger investors. Now, sometimes there's a non-shady reason for this, but more often than not the reason is that small-scale investors can't afford the same level of due diligence to detect scams and can't afford to take legal action if the whole thing implodes. (We saw this with the Perma-Pave ponzi recently - it took one of the larger investors investigating, finding evidence it was a ponzi, and suing for anything to happen. The smaller investors were stuck flailing around amongst misinformation from people involved in the scam.)

What's the "long term view" on Tesla? What's the benefit of them selling electric cars vs. Toyota or GM? The latter have clearly shown their capability to do so. Tesla just thinks a different approach to the market is superior. They'll be proven right or wrong in the next few years. That's well within the time horizon for an investor to make a reasonable decision: Who's more likely to make a profit with their electric car plans? Toyota, GM or Tesla? This is the kind of thing markets are good at. If the government wants more electric cars, just subsidize everyone's cars (which they're doing, of course). Don't try to be a super-VC.

I'd say partially it's new and sexy, but I imagine the suggested long term is it could help show America as a leader in green tech which should help attract outside investment into other green tech ventures, helping to kickstart a new economic driver.

What Tesla is doing is creating an entire new venture from scratch from nothing, for them to hit profitability and make any solid return is likely to take a decade. VCs are unlikely to dump $500m for a 10 year wait, sure they'll know within a few years whether it was a good investment, but it's not likely to be viewed as a safe bet.

So the difference in "sexy" between Ford making a few hundred thousand electric cars and Tesla making a few hundred thousand electric cars is worth risking half a billion dollars of the taxpayers' money?

Note, not American so my interest in American tax dollars is pretty slim. But, in general yes it's worth the risk.

America, like most countries, is looking for a new industry to keep the economy moving on up. Manufacturing used to do it, then that shifted away, then the financial sector was the keeping the economy ticking over and that went a bit awry, now there needs to be a next thing. Investing in Tesla is a chancy risk (although I imagine the US.gov has taken steps to minimise the risk), but if it pays off and helps develop a new economic motivation industry with green tech it could help as a job creation strategy and also attract investment from outside the country.

Tesla looks and sounds sexy, they're a new darling with no baggage, they've got this guy involved who's daring and reasonably well liked with huge ideas, the cars themselves are gorgeous. That's much more exciting than Ford making electric cars.

$500m sounds like a hell of a lot of money when it's out there, but the US spent $700b on the military in 2011. Compared to that $500m on Tesla is not a huge amount. Without being glib, $500m is a rounding error on the military spend, if Tesla strapped some rockets and bullet proofing it could slip into the budget.

Ford received a loan that was an order of magnitude larger than what Tesla received. You're arguing from your biases and not from facts.

Ford did not receive any "bailout" funds, either as equity or debt.

"As the only one of the U.S. Big Three that didn't accept the offer of a federal-government bailout in 2009, Ford [relied] instead on its own huge bet on its future financed by private capital and led by CEO Alan Mulally"

http://www.brandchannel.com/home/post/2012/10/26/Ford-Europe...

That's right, ford didn't get a bailout, they got the exact same loan Tesla has, but theirs was bigger.

Good point.

https://lpo.energy.gov/?page_id=43

I'm confused by the criteria described at the bottom of the page:

In order to be financially eligible for an ATVM loan, an applicant must be financially viable without the receipt of additional federal funding for the proposed project.

Would Tesla really have been financially viable without this loan?

I think their powertrain business has always been profitable. It just would have taken a lot longer to build up to the point they are now.

Reply on news.ycombinator.com