Steyer Critics Call Out Tax-Break 'Hypocrisy' Over Support for New Tesla Subsides

Fight heats up over California's $3 billion electric-vehicle subsidy

Tom Steyer
Tom Steyer / Getty Images
August 21, 2017

The fight over a California state bill to create a $3 billion state subsidy program for electric vehicles, a potential boon for Tesla, is intensifying with the Senate set to take up the measure Monday.

Conservatives this week criticized environmentalist activist Tom Steyer for backing the bill, which would increase the state's existing subsidy program for so-called "green cars," after Steyer said on Twitter that "not one penny" in tax cuts should go to "those who don't need it."

Steyer, a billionaire former hedge fund manager who now funds clean-energy and anti-poverty initiatives, late last week tweeted out his support for the #notonepenny hashtag campaign in favor of tax reform that eliminates tax cuts for millionaires and billionaires.

"Cutting taxes for wealthy does not trickle down," he tweeted Aug. 14. "We should give #NotOnePenny in tax cuts for those who don't need it."

That position contradicts his support for a bill that aims to increase electric vehicle (EV) sales in California, critics said, because the measure's biggest go to electric vehicles, with lower tax breaks for hybrids, and would aid cash-strapped Tesla at a crucial time for the company.

Tesla is owned by billionaire Elon Musk, whose enterprises have benefited from nearly $5 billion taxpayer subsidies at the state and local level, according to a Los Angeles Times analysis, even as its balance sheets have remained in the red.

The state's Senate Appropriations Committee plans a Monday hearing on the bill, which has already passed the Assembly, when the legislature returns from its August recess. After that, the Senate could quickly pass it or put it on hold for several weeks.

Conservatives such as GOP state Sen. Andy Vidak of Fresno argue the measure would primarily benefit Tesla, its billionaire owner, and his wealthy patrons because hydrogen and hybrid vehicles would receive lower rebates. The bill does not state how much lower those rebates would be and appears to leave that up to the California Air Resources Board.

"The Tesla subsidy bill that Mr. Steyer is sponsoring is literally a gift of tax funds to the billionaires who own electric car companies and the millionaires that buy these specialty cars," Vidak told the Washington Free Beacon.

Vidak suggested Steyer should earn the new nickname "Mr. Pretzel" as he tries to "bend his way out of this hypocrisy."

A spokesman for NextGen, the umbrella group for Steyer's initiatives, jabbed back at Vidak and other critics, arguing that green-energy initiatives create jobs and improve the environment for all while Republicans in Washington are planning big tax cuts that will benefit corporations and the rich.

"Clean energy benefits millions of Californians by creating jobs and keeping our air and water free of harmful pollution," the spokesperson said. "We urge Mr. Vidak to drop the silly political posturing and do what's right for California: Support the clean energy economy and oppose the massive tax cuts for the rich that the Republican Party will soon try to ram through Congress."

Other critics of electric vehicles argue that proponents aren't telling the whole story.

Even subsidies for the new more moderately priced Tesla model 3 take taxpayer dollars from the less fortunate and give them to higher earners, said Tom Tanton, director of science and technology assessment at the Energy and Environment Legal Institute, a free-market advocacy group.

Tanton also pointed to an often overlooked human cost of electric vehicle manufacturing—that the cobalt required to build their batteries is mined largely in Africa under extremely poor worker conditions.

"There are tremendous human rights and child abuses in mining, especially in Africa," Tanton said.

Tanton and Vidak also point out that California has the highest poverty rate of any state when factoring in cost-of-living even though its job and economic growth has outpaced much of the nation.

University of California at Berkeley-trained researchers found in a 2016 study of EV and hybrid vehicle rebates that more than 83 percent of nearly 100,000 rebates under the California program went to buyers with incomes greater than $100,000. Another study in late 2015 by two Berkeley professors found the wealthiest 20 percent of Americans received 90 percent of federal EV subsidies underwritten by the taxpayers.

Assemblyman Phil Ting of San Francisco, the main author of the bill, said that expanding the EV subsidy program would jump-start California Gov. Jerry Brown's goal of putting 1.5 million electric vehicles on the roads by 2025 and 4 million by 2030.

"Electric cars are the future. We have reached a tipping point and it's time to give the electric car revolution an aggressive boost," Ting said when announcing the bill back in June. "California's ambitious goals to reduce climate altering emissions require transportation electrification. We need an incentive program to get everyone behind the wheel of an electric vehicle."

The bill also calls for investing $500 million in cap and trade program funds set aside to ensure that "disadvantaged communities, school and transit budgets and freight benefit from the transportation electrification," Ting said in a press release about the bill.

The timing is critical for Tesla. The federal government provides a tax credit of $2,000 to $7,500 for hybrid and plug-in cars, but that subsidy begins phasing out when an automaker sells 200,000 vehicles, a benchmark Tesla will close in on over the next few months.

Tesla is now starting to roll out its $35,000 base-priced Model 3 sedan with wait lists for the more affordable model soaring. However, the company is so short on cash needed to boost that production that it is issuing $1.5 billion in high-yield junk bonds.

Losing a $7,500 subsidy, which is phasing out over the next year as federal law requires, on a $35,000 car would be a serious competitive disadvantage because other electric vehicle manufacturers are nowhere near the 200,000 sales cut off.

Tesla sales in Hong Kong and Denmark plummeted in recent months following the removal of heavy government subsidies.

California is by far the largest market for the previous models but could see sales lag, especially with the high-end X and S models, with the $7,500 federal subsidy disappearing.

Under Ting's bill, Tesla and other fully electric vehicle buyers would receive thousands of dollars in rebates at the dealership when purchasing their cars and low-income buyers would be eligible for larger rebates.

Vidak says the rebate could reach up to $30,000 to $40,000 per electric vehicle because the language in the bill says the California Air Resources Board would determine the size of the rebate based on equalizing the cost of an electric vehicle and a comparable gas-powered car.

For example, a new $35,000 electric vehicle might have the same features of a $25,000 gas powered car so the EV buyer would get the $10,000 difference provided by a combination of state and federal subsidies. After the federal subsides run out, the state would provide the sole difference between the two prices.

In a $100,000 Tesla model, the board may deem that it has the same features of a $65,000 gas-powered car and make up the entirety of the $35,00 difference once the federal subsidy runs out.

Published under: Tesla , Tom Steyer