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Tesla and the danger of soft budget constraints

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Tesla considering factory in China

 

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.

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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.

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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

"I write about technology and the coming zero emissions revolution."

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Tesla Model Y L’s new features flexed at unveiling event at Diner

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Tesla Model Y L in a field
Credit: Tesla

Tesla flexed the new features of the Model Y L with a dedicated media event at the company’s Diner on Santa Monica Boulevard in Los Angeles.

The Model Y L is the extended-wheelbase version of the all-electric crossover, which has been voted the best-selling car in the world on three occasions. The vehicle is already rolling off production lines at Gigafactory Texas, and first deliveries are slated to take place later this year.

Tesla brings Model Y L ‘Launch Series’ to the U.S. at $61,990

Teslarati was invited to the event, but due to some scheduling conflicts, we could not make it to Los Angeles. Instead, we will have our hands on a media unit sometime in August, so we’ll be able to spend some more extended time with the Model Y L.

However, plenty of those who made it to LA shared some cool features that set the Model Y L apart from the Model Y.

Multi-Row Climate Control

Tesla fitted the Model Y L with full climate control on all three rows on the front screen. It can be adjusted by selecting which row you’d like to modify on the right-hand side of the touch screen:

Better Rear Window Visibility

One of the strangest things about the Model Y, especially the Juniper iteration, is the rear window has extremely limited visibility when looking into the rearview mirror.

Tesla has improved upon this with the Model Y L:

PowerShare will be included

Model Y L will come with PowerShare in North America, with an 11.5kW output to your home. Tesla said it would require Powerwall 3 for operation.

Wireless Charging Pad

There has been some speculation that Tesla would upgrade the wireless charging pads in the United States, but this is not the case.

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Tesla owner fixes common feature complaint with crafty DIY retrofit

Tesla confirmed that it does not come with the cooled pads as the Y L in China does. This is because North America has not adopted Qi charging yet.

Thermal Management Improvements

These improvements in the Model Y L were seen with thermal management:

  • Up to 15% faster cabin cooling
  • +23% thermal efficiency gained in hot weather, 7 miles of real-world range gained
  • 8x more solar energy reflection off of glass roof
  • 30% reduction in solar energy entering the cabin

Demand

Tesla said the Model Y L is almost sold out in the U.S. It comes with

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  • 1 year of FSD Supervised
  • 1 year of Supercharging
  • 1 year of Premium Connectivity
  • Free exterior paint color, interior, and wheel option at no additional cost
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Tesla CEO Elon Musk denies ridiculous Gigafactory Shanghai rumor

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(Credit: Tesla)

Tesla CEO Elon Musk took to his social media platform X on Thursday night to deny a ridiculous rumor regarding the sale of the company’s Chinese vehicle production plant, Gigafactory Shanghai.

On Thursday, the Wall Street Journal, citing sources familiar with the matter, claimed in a scathing new report that Tesla was exploring a potential sale of the entire China business in an effort to help bolster a potential merger between SpaceX and Tesla.

Musk immediately denied the rumor not once but twice, initially calling it “fake news,” and then calling it “absurdly fake news” in a separate post just a few moments later:

The original poster of the Wall Street Journal article that Musk saw deleted the initial post sharing the headline and the rumored sale of Tesla’s China business.

The report seemed absolutely and unequivocally false to begin with; Tesla’s business in China is among the most important pieces of the company’s business. Not only does the factory supply vehicles for the domestic market, but also for various other markets in Asia and Europe.

China is also one of the largest automotive markets in the world, and Tesla has performed well there despite the robust competition.

The speculation regarding a Tesla and SpaceX merger has started to gain steam this year as the space exploration company went public just a month ago. There has been speculation that Musk will bridge all of his companies under one “umbrella company,” and analysts believe this could happen before the end of the decade.

The Tesla and SpaceX merger everyone is talking about is quietly building

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This is the latest iteration of Musk’s very evident war on mainstream media. Reports regarding any of Musk’s companies are quick to get the dreaded “false” or “fake news” response from the CEO when they are unfounded.

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Tesla AI boss reveals how big Optimus is going to get

Tesla’s Optimus chief corrected himself on X, confirming a staggering 10 million robot production target.

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Tesla Optimus Gen 3 [Credit: Tesla]

Tesla’s Optimus program has a new number attached to it, after Ashok Elluswamy, the executive who has run the humanoid robot program since June 2025, posted a three word correction on X Thursday, “Correction, 10 million robots.”

The line clarifies the long term annual capacity Tesla is building toward its planned second Optimus production line at Gigafactory Texas, a figure Musk has cited repeatedly since last year’s shareholder meeting.

The scale is worth noting, because ten million robots a year would mean Tesla building more units annually than most countries sell in new cars. Tesla has framed this as a second line, not the first. The buildout is happening in two phases: a roughly one million unit per year line inside Tesla’s Fremont factory, installed on the floor space vacated when Model S and Model X production ended earlier this year, and a much larger dedicated facility under construction at Giga Texas that broke ground on its first steel structure in May. That Texas facility is the one Elluswamy’s correction refers to, and is expected to reach volume production sometime in 2027.

Tesla Optimus project fires up as Musk sees production line progress

Elluswamy took over Optimus from Milan Kovac last summer and has spent the months since talking up the program’s trajectory. Elon Musk has also floated the ten million figure at Tesla’s 2025 shareholder meeting.

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Ending Model S and Model X production to make room for the first Optimus line was one of the more consequential manufacturing decisions in the company’s recent history, retiring two flagship vehicles in favor of a robot that has yet to enter mass production. Musk has previously estimated per unit production costs at $20,000 to $25,000 once Tesla reaches a million units a year, though he hasn’t said what that cost looks like at ten times the volume.

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