What do you call the CEO of a company that has grossly overvalued stock, a new government probe into its signature product's spotty safety record, and, most importantly whose very financial existence would be questionable at best were it not for government handouts?
If you're Fortune magazine, you call him Businessperson of the Year, and that would be Tesla Motor Company CEO Elon Musk. Here's their justification for the award, announced today:
It is no Secret that Elon Musk is a triple threat: The co-founder of PayPal has gone on to disrupt aeronautics with Space Exploration Technologies, known as SpaceX; shake up the auto business with Tesla Motors (TSLA); and retool the energy sector with SolarCity (SCTY). (He is CEO of the first two companies and chairman and largest shareholder of the third.) But 2013 was an especially notable year for Musk, as investors and consumers wholeheartedly embraced his ideas and vision. After a rocky start a decade ago, Tesla has emerged to become the world's most prominent maker of all-electric cars. Revenue at Tesla is up more than 12-fold for the first three quarters of the year, and the company is on track to top $2 billion in sales in 2013. The stock is up more than fourfold year to date, and that's after giving back some gains when recent vehicle sales missed some analysts' estimates. (A series of troubling car battery fires has not helped.) And just as SpaceX has helped reignite interest in space exploration, Musk's plans for a "hyperloop" between San Francisco and Los Angeles got Americans buzzing about ultra-high-speed transit when Musk released his design plans in August. Musk's creations have already made him tremendously wealthy -- Bloomberg Wealth says he is worth $7.7 billion -- but it is his audacity and tenacity that make him Fortune's Businessperson of the Year.
You need to be audacious when the government is all you have going for your business model. As the Wall Street Journal explained back in May (emphasis):
Tesla wouldn't have sold even that many cars without the extraordinary help of government. In 2009 the company received a $465 million Obama loan guarantee, supplemented last year by a $10 million grant from the California Energy Commission.
That money has underwritten Tesla's engineering and manufacturing, but federal and state governments also subsidize the purchase of Tesla products. Any U.S. buyer of a Tesla car qualifies for a $7,500 federal tax credit, while states like Colorado throw in up to $6,000 more in state income-tax credits. Taxpayers pay first so Tesla can build the cars and again to help the wealthy buy them.
These subsidies are important enough to Tesla that its website features an "Incentives" section directing buyers where to look for their states' electric-vehicle benefits—rebates, free parking, exemptions from state sales tax, use of high-occupancy lanes, and the like. Buyers from states that offer no incentives get this Tesla message: "Want to help make EV [electric vehicle] incentives a reality in your area? Encourage your local or state representative by calling or sending them a letter."
Tesla's biggest windfall has been the cash payments it extracts from rival car makers (and their customers), via its sale of zero-emission credits. A number of states including California require that traditional car makers reach certain production quotas of zero-emission vehicles—or to purchase credits if they cannot. Tesla is a main supplier.
A Morgan Stanley MS +2.34% report in April said Tesla made $40.5 million on credits in 2012, and that it could collect $250 million in 2013. Tesla acknowledged in a recent SEC filing that emissions credit sales hit $85 million in 2013's first quarter alone—15% of its revenue, and the only reason it made a profit.
Take away the credits and Tesla lost $53 million in the first quarter, or $10,000 per car sold. California's zero-emission credits provided $67.9 million to the company in the first quarter, and the combination of that state's credits and federal and local incentives can add up to $45,000 per Tesla sold, according to an analysis by the Los Angeles Times.
This is not to say that Tesla may not stand on its own sometime in the future. It is certainly possible. But there's no denying that, as it stands now, it has only gotten where it is from a combination of celebrity interest, media hype, government backing, and maybe some shady accounting for good measure. As ArsTechnica's Cyrus Farivar explained back in August:
Earlier this year, Tesla Motors announced its first-ever quarterly profits. Now, after the second quarter of 2013, the company announced that its income and sales are up—far higher, in fact, than analysts had expected.
“While profits were still modest in absolute terms and not our primary mission, income increased by 70 percent from last quarter, driven by record Model S deliveries and a significant improvement in automotive gross margin,” Elon Musk, the company’s CEO, wrote in a statement on Wednesday.
Investors liked what they saw: after-hours trading sent the company’s stock price shooting up around 13 percent as of this writing.
But was the company actually profitable? That’s where it gets tricky. According to the more stringent Generally Accepted Accounting Principles (GAAP), the answer is no: Tesla Motors lost $30.5 million this past quarter. But based on the looser non-GAAP measures, the company claims to have made $26.2 million. (By comparison, Tesla reported profits of $11.2 million in Q1 2013 as measured by GAAP.)
