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Tesla and the danger of soft budget constraints

The Wall Street Journal is not always friendly to Elon Musk and Tesla Motors. In an article published August 16, staff writer Holman Jenkins, Jr. suggests that Tesla is one election away from extinction. Why? Holman bases his analysis on a study of John Z. DeLorean and an economic principle known as soft budget constraints.
The study by Graham Brownlow of Queen’s University Belfast was published in October, 2014. It says one of the foundations for DeLorean’s start-up car company was the willingness of the British government to subsidize the enterprise with grants, tax breaks, government backed loans, and other political incentives.
In 1975 when DeLorean Motors began, conflict between Protestants and Catholics in Ireland was at a fever pitch. The economy of Northern Ireland was in tatters and the British government was desperate to attract manufacturing jobs to the area. DeLorean promised to do just that and the government responded with open arms.
Brownlow says the support from the government amounted to what economists refer to as soft budget constraints, meaning the company never had to turn a profit. In effect, as DeLorean boasted at the time, the government was in so deep, it had no choice but to continue funding the operation. In layman’s terms, its like having rich parents and knowing they will cover your losses no matter how foolishly you spend your money.
Jenkins says Tesla Motors is similarly positioned. It is the beneficiary of several indirect government subsidies such as federal and state tax credits, HOV stickers, and the like. He also claims the company benefits from direct government support in the form of loan guarantees and corporate tax credits. Taken together, they provide Tesla with the ability to exceed normal budgetary constraints on a regular basis.
He prefers what he would term the more traditional model, as laid out by Brownlow. “The more [an entrepreneur] expects that the existence and growth of the firm will depend solely on production costs and proceeds from sales, the more he will respect the budget constraint,” Brownlow writes.
Jenkins hints darkly that Musk’s recent decision to bring the start of production of the Model 3 forward by 2 years is a ploy designed to force the federal government to extend the tax credit program for buyers of electric cars. Tesla will be bumping up against the 200,000 vehicle limit in total US sales by the time that car goes on sale.
He also thinks the merger between Tesla and SolarCity is intended to mute the criticism that Teslas are not as environmentally friendly as they are touted to be, since the majority of electricity in the United States comes from burning fossil fuels like natural gas and coal.
Jenkins reminds readers that John DeLorean’s dream came crashing down once Margaret Thatcher came to power. She turned off the financial spigot that had propped him up, with predictable results. The implication is that Tesla is just one election away from a similar fate.
Jenkins could be the designated cheerleader for all the people who have shorted Tesla stock. The comments appended to his story in the Journal make it clear his opinions have plenty of enthusiastic supporters, many of whom view Elon Musk as little more than a scam artist.
In his efforts to advocate for a level playing field where every corporation pays all its bills on time, pays all its taxes, never accepts a hand out from the government, and always does the right thing, he conveniently overlooks the $5 trillion a year in direct and indirect subsidies the International Monetary Fund says are provided to the fossil fuel industry every year.
There is a coda to the DeLorean story, one that is seldom told. It is said that John Z personally selected the spot where his factory in Northern Ireland would be built. The Irish have a long and steadfast belief in what they call “the little people.” We call them leprechauns.
According to the story, the site DeLorean chose required the removal of a whitethorn tree. Now, everyone knows the little people build their homes in the roots of whitethorn trees. Uprooting one is guaranteed to bring some seriously bad mojo down on your head.
What happened to DeLorean only proves that legend may be more powerful than economic theory. The antidote to Jenkins’ gloomy predictions may be to inform Elon he must never cut down a whitethorn tree to build one of his factories.
Source: Wall Street Journal
News
Robotaxis are already making roads safer, Waymo report reveals
Waymo Driver is already reducing severe crashes and enhancing the safety of vulnerable road users.

Industry leaders such as Elon Musk have always maintained that autonomous robotaxis will make roads safer. A recent blog post from Waymo about the safety of its self-driving cars suggests that Musk’s sentiments are on point.
Way More Safety
Waymo Driver is already reducing severe crashes and enhancing the safety of vulnerable road users. As per a new research paper set for publication in the Traffic Injury Prevention Journal, Waymo Driver had outperformed human drivers in safety, particularly for vulnerable road users (VRUs).
Over 56.7 million miles, compared to human drivers, Waymo Driver achieved a 92% reduction in pedestrian injury crashes. It also saw 82% fewer crashes with injuries with cyclists and 82% fewer crashes with injuries with motorcyclists. Waymo Driver also slashed injury-involving intersection crashes by 96%, which are a leading cause of severe road harm for human drivers. Waymo Driver saw 85% fewer crashes with suspected serious or worse injuries as well.
What They Are Saying
Mauricio Peña, Waymo’s Chief Safety Officer, was optimistic about Waymo Driver’s results so far. “It’s exciting to see the real positive impact that Waymo is making on the streets of America as we continue to expand. This research reinforces the growing evidence that the Waymo Driver is playing a crucial role in reducing serious crashes and protecting all road users,” the Chief Safety Officer noted.
Jonathan Adkins, Chief Executive Officer at Governors Highway Safety Association, also noted that Waymo’s results are very encouraging. “It’s encouraging to see real-world data showing Waymo outperforming human drivers when it comes to safety. Fewer crashes and fewer injuries — especially for people walking and biking — is exactly the kind of progress we want to see from autonomous vehicles,” Adkins stated.
Elon Musk
Tesla hints at June 1 launch of Robotaxi platform in Austin
Tesla has hinted at a potential launch date for the Robotaxi service in Austin, Texas.

Tesla just dropped its biggest hint yet about the potential launch date of its Robotaxi ride-hailing platform in Austin, Texas, shedding more light on when to expect it to take off.
In preparation for the ride-hailing service to launch, Tesla has been in talks with the City of Austin for months. It has also spent recent months bolstering its Full Self-Driving suite, aiming for it to handle initially supervised rides with the use of teleoperators to keep things safe and dependable, at least early on.
The company has also said that it expects the Robotaxi service, which will drive passengers in Tesla Model Y vehicles to start, to launch in Austin in June. However, Tesla has not given an exact date.
Now, Tesla is hinting that Robotaxi could launch on June 1, based on a very vague X post it published on May 1:
Of course, this is extremely speculative. However, it’s the first time Tesla has made any suggestions about a potential launch date, so it’s worth taking it seriously.
While the automaker has often missed timelines in the past, most notably the launch of a “feature-complete” Full Self-Driving platform, this is the first time we’ve seen Tesla be so adamant and truly reiterate a target date.
Tesla has not shied away from this June date for the Robotaxi launch yet, something that is worth noting as we move closer to June. All signs point toward Tesla being able to come through on this timeline, and it could be one of its biggest accomplishments yet on the grand scheme of things. The Robotaxi rollout will be controlled and small to start, the company noted on its most recent Earnings Call.
CEO Elon Musk said:
“The team and I are laser-focused on bringing robotaxi to Austin in June. Unsupervised autonomy will first be solved for the Model Y in Austin.”
At first, it also seems as if the first Robotaxi rides will be available to a select group, as Musk said the ability to order one will not be available to the general public until later in the month. He also said the initial fleet will be between 10 and 20 vehicles:
“Yeah. We’re still debating the exact number to start off on day one, but it’s, like, I don’t know, maybe 10 or 20 vehicles on day one. And watch it carefully. They scale it up rapidly after that. So, we want to make sure that you’re paying very close attention the first time this happens. But, yeah, you will be able to — end of end of June or July, just go to Austin and order a Tesla for autonomous drive.”
While the June 1st date of the Robotaxi launch is extremely speculative, Tesla seems convinced that its vehicles could already handle this task. It would be something to see them come through on this date, especially on the first day of the month.
News
Is the affordable Tesla Model Y’s features hiding in plain sight?
Variants of the Model Y that could bring down the vehicle’s price would likely be appreciated by consumers.

Just recently, rumors emerged in China suggesting that a more affordable Tesla Model Y variant internally dubbed the ”E80” would be produced in Giga Shanghai this May. A look at Tesla’s current affordable vehicles suggests that the features of the upcoming Model Y variant may be hiding in plain sight.
Model Y “E80” Rumors
Reports from Chinese publications suggested that the affordable Model Y “E80” will be a stripped down version of the new Model Y. Thus, the vehicle may be equipped with smaller wheels, single-layer windows on its sides, no rear display, half the number of speakers, single-color ambient interior lighting, fabric seats with no heating or ventilation functions, and a manual trunk.
These reductions, the rumors suggested, would allow Tesla China to offer the Model Y “E80” at an affordable price of 190,000–210,000 ($26,000–$28,800). Other rumors suggested that the vehicle will be priced even more aggressively, at around 150,000-170,000 yuan ($20,500-$23,300).
Hiding in Plain Sight
What is quite interesting about the Model Y “E80” rumors is the fact that Tesla has actually released stripped-down versions of its vehicles to make them more affordable. Based on the features that were bundled in these vehicles, one could make an inference about the features that the Model Y “E80” will have, at least considering its rumored aggressive pricing.
In August last year, Tesla Mexico launched a variant of the Model 3 sedan that is quite unlike the vehicle’s base variant in the United States. The vehicle was priced at MXD 749,000 (USD 40,000), which was MXD 50,000 (USD 2,670) lower than the Model 3 RWD’s previous price in Mexico, which stood at MXD 799,000 (USD42,730).
With its more affordable price, Tesla Mexico’s base Model 3 featured textile seats instead of vegan leather, acoustic glass only on its front windows, and no secondary display for rear passengers. Its ambient lights were also limited to just white. Lastly, the vehicle did not have heated or cooled seats or a heated steering wheel. These reductions are very similar to the rumored feature set of the Model Y “E80” in China.
The Tesla Cybertruck Long Range Rear Wheel Drive is another base variant that could provide hints at the affordable Model Y’s features. Similar to Tesla Mexico’s base Model 3, the Cybertruck LR RWD features textile seats and no second-row display. Interestingly enough, the Cybertruck LR RWD is $10,000 cheaper than the Cybertruck. That’s similar to the rumored price difference between the new Model Y in China and the vehicle’s supposed affordable “E80” variant.
Still Compelling Enough?
Perhaps the biggest question at this point would be if the rumored Model Y “E80,” even with its stripped-out features, will be compelling enough for consumers. While such concerns are valid, one must not forget that the Model Y is still a premium vehicle.
Thus, variants of the Model Y that could bring down the vehicle’s price would likely be appreciated by consumers. The fact that the rumored “E80” will be produced in Giga Shanghai speaks volumes as well, especially since China is home to the most competitive EV market in the world. Giga Shanghai also exports vehicles to several territories worldwide.
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