Another outbreak of Musk derangement syndrome

J.R. Clark and Edward Stringham

Tesla Motors, Inc.’s recent $2.8 billion bid for SolarCity, a maker of commercial and residential solar panels, has generated another round of adulation and vilification that seems to follow around Tesla CEO Elon Musk wherever he goes.

The adulation is easy to understand, especially from the point of view of the environmental left, which views Musk’s mythic quest for a clean-energy future, privatized space exploration, and beautiful mass-market electric vehicles with an almost religious veneration.

Yet Musk, a serial tech entrepreneur whose net worth is now estimated at something north of $12 billion, really stands as the perfect counterexample to the “you didn’t build that” set who believe government planners are behind every technological breakthrough.

But on the right, Musk’s unarguable success as a tech innovator seems not to protect him from constant charges that he is running “a business heavily dependent on government handouts in the U.S. and abroad” and “deeply dependent on billions of dollars in taxpayer subsidies” for Tesla’s manufacturing projects. Tesla’s potential merger with a solar panel company only deepens the angst among pro-market pundits.

At the outset, let’s concede the reality that Musk does pursue tax preferences and other incentives for his projects (a cash subsidy from the government is an entirely different thing). In this, he should be judged not against the purity tests of free-market economic theory, but how business is actually conducted today.

But can Musk, the man who takes advantage of expedient public means to further his clean energy goals, still be looked at as some sort of hero of capitalism?

It is highly likely, and particularly so with Tesla Motors. What Musk has demonstrated so far is that a determined upstart with an entirely new way of looking at things can send shockwaves through one of the world’s largest and oldest industries.

Musk, an innovator with no automotive resume, knew one thing: automakers, with all of their considerable “incumbent” advantages, were nonetheless competing in a market where products must meet the market test. In dealer showrooms all over the country, car and truck buyers ultimately decide who wins and who loses.

The scope of Musk’s Tesla ambitions is nothing short of remarkable. Aside from rapidly accelerating the development and adoption of electric vehicles — total sales now top 125,000 units), Musk has moved to a direct-sales model, thus taking on the powerful car-dealer lobby with its franchise-law protections at the state level.

In a capital-intensive industry, where clean-sheet, new-model introductions can run $1 billion or more, Musk has put together a system — echoing smartphone or laptop manufacturing methods — that sources Tesla vehicles through an off-the-shelf network of automotive partners and suppliers.

Peter Thiel, who, along with Musk, is a member of Silicon Valley’s “PayPal Mafia” of innovators and investors, said in 2015 that Tesla Motors was underappreciated for the way it went about rebuilding “everything at once.” Such revolutionary behavior, he said, is “something that we’re taught not to do or think about.”

Is Tesla’s success a given? Far from it.

Musk is competing as a niche player in a global industry that may produce close to 90 million light vehicles this year. Vehicle manufacturing is also the third-most regulated industry in the United States. And those regulatory demands will only increase as state and federal agencies race to catch up with the development of driverless cars. Trial lawyers are undoubtedly “coming for the robot cars,” and the recent spate of accidents, including the fatal crash of a Tesla S in Autopilot mode, will heighten the tort risk.

As Musk himself once admitted, “If nothing else, we are committed to failing in a new way.” In a tech world where disruptive innovation is more often cited than found, Musk is the real thing. It’s time for free marketers, not just environmentalists, to give him his due.

J.R. Clark is the Probasco chair at The University of Tennessee at Chattanooga. Edward Stringham, author of “Private Governance: Creating Order in Economic and Social Life,” is the Davis professor of economic organization and innovation at Trinity College.