And if the government had wanted to bargain like a real venture capitalist, Tesla’s desperate need for cash gave the feds the power to demand options on half the company’s stock, or more. Over at the Treasury Department, negotiators were demanding big ownership stakes in exchange for life-saving bailouts. The Treasury wound up owning 85 percent of AIG’s stock and 32 percent of GM’s.
There was nothing to prevent DOE from demanding stock options from Tesla. Tesla’s loan came courtesy of a 2007 law signed by George W. Bush, which provided $25 billion for loans backing “Advanced Technology Vehicles Manufacturing.” While Congress required the Energy Department to lend at low rates, equal to what the government pays, the law was silent on the issue of stock options.
And, in fact, the Energy Department actually did negotiate for options on 3 million shares of Tesla stock as part of the original loan, options that would be worth $300 million based on Tesla’s current share price. Unfortunately for taxpayers, those options no longer exist. Tesla had the right to force the extinguishment of those options by repaying the loan early, as it just did. (The Energy Department says that was expected, since unlike typical options these were never meant to turn a profit but rather to encourage Tesla to repay the loan early if it could.)
Elon Musk didn’t mention that $300 million reason when he explained last week why Tesla was repaying the loan early. Musk cast the repayment not as a responsibility to his shareholders but rather as a moral duty to the taxpayers who made his company’s success possible. “Having accepted taxpayer money, I thought we had an obligation to repay it as soon as we reasonably could," Musk told the Wall Street Journal last week.
Asked to explain what, in fact, was Musk’s primary motive for the loan repayment, a Tesla spokesperson declined to comment. (Musk also told the Journal that “If economics were the only consideration we would not have done this," despite the company’s significant economic incentive to kill the government’s options.)
Supporters of the government stimulus program point to Tesla as a shining example of how such investments can be long-term successes. “Ultimately, making the U.S. the leader in advanced vehicles and clean energy will pay for itself many times over as our economy grows and new industries are created,” says an Energy Department press officer.
Here’s hoping that proves true. In the meantime, the question of how to compensate taxpayers for Tesla-esque successes remains a distinct issue, one that the government would do well to pay more attention to the next time it plays venture capitalist. If the government had demanded an ownership stake in reasonable proportion to the amount of money it put at risk, Tesla would be just as successful as it is today. The only difference would be that the taxpayers who saved the company would share in that success.