Monday, December 01, 2008

Who Should Pay for Innovation?

I've been following the Tesla since it's inception. As the story goes, a bunch of silicon valley geeks got together with the idea that they could build a better electric car than Detroit, applying the same high-tech approach that has been so successful in Silicon Valley. With the big three automakers requesting a bailout from the government, Tesla is hoping to get a piece of that bailout. This New York Times story - Only the Rich Can Afford It. Should Taxpayers Back It? - raises some interesting questions. Should we be funding the big three from Detroit or a thousand little startups like Tesla. Maybe the big three should propose to split up into hundreds of little startups each innovating and competing against the other. I'm not sure what the answer is, but I can't help thinking of Einstein's famous quote - "... insanity is doing the same thing over and over again and expecting different results."
The Tesla Roadster is an electric car that goes fast, looks sensational and excites envy. The seductive appearance, however, obscures some inconvenient truths: its all-electric technology remains woefully immature and don’t-even-ask expensive. If enough billionaires step forward to inject additional capital to keep the doors of its manufacturer, Tesla Motors, open, I’m happy for all parties.

If investors pass up the opportunity, however, why should taxpayers fork over the capital that Tesla needs? The Roadster is not much more than a functioning concept car that sells for $109,000. The company is requesting $400 million in low-interest federal loans as part of the $25 billion loan package for the auto industry passed by Congress last year.

The program is intended to encourage automakers to improve fuel efficiency, but should it be used for a purpose like this, as the 2008 Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act? Can you conceive any way that federal dollars could be put at greater risk — and for no equity in return, keep in mind — to benefit fewer people?

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