Investors Flock to ‘Clean’ Tech, So Why the Subsidies?

According to a report in USA Today, venture capitalists are throwing tons of money into clean and “Green” technology companies. In fact, investor Alan Salzman of VantagePoint Capital Partners says, “It’s not alternative: We think of it as mainstream.”

How mainstream? The newspaper says:

Several venture capitalists interviewed say it could be hundreds of billions of dollars — if not more — when adding up various slices, such as wind (estimated $60 billion) and solar ($20 billion to $30 billion).

There is little doubt what VCs think: They poured $4.9 billion into domestic start-ups last year, up 40% from 2009, says market researcher Cleantech Group.

The numbers suggest “strong long-term VC interest,” says Sheeraz Haji, an analyst at Cleantech Group who notes that an increase in the average size of deals shows a “continued bias towards later-stage deals.”

Wow. And the evidence just flows and flows throughout the USA Today article: start-ups that rake in “record amounts of investments;” IPOs “sprouting like vegetables;” promising start-ups “snapped up as acquisitions;” and U.S. venture capital investment in “clean” tech companies is up 21 percent over the same quarter last year. 

Also, big corporations such as Intel, Google, Ford Motor Company, Chevrolet, Nissan, Daimler, Toyota, Chevron, and General Electric are investing aggressively in “clean” technology. So the question remains, if private investors are eager to pour cash into these businesses, then why doesn’t the government stop taking taxpayers’ money by force and putting it into companies that apparently don’t need it? 

For example, the Washington Examiner’s Tim Carney has noted the subsidies given through the government stimulus program to the joint venture between Tesla and Toyota to manufacture an all-electric automobile. Reuters reported last year:

Since its start, the company (Tesla) has burned through $230 million of cash while recording revenue of just $148 million. It expects its losses to deepen as it devotes the next year to preparing to manufacture Model S, a luxury electric sedan it plans to launch in 2012 and to sell starting from $57,400 (while being eligible for the $7,500 federal tax credit).

To build Model S at a Fremont, California assembly plant abandoned by Toyota will require the company to meet tight deadlines under the watchful eye of the U.S. Department of Energy, which has subsidized Tesla with $465 million in loans.

Also, California-based Tesla is the beneficiary of the Golden State’s complex, extreme greenhouse gas emissions reduction policy. The company benefits from a $5,000-per-vehicle-produced “Zero Emissions Vehicle Credit,” which it can sell to the other large automakers because they don’t fit the state’s qualifications for the program (because they sell more than 60,000 cars, but not enough zero emissions vehicles). Wired reported last year that 85 percent of Tesla’s total gross margin — $8.2 million – was from sales of ZEV credits.

The Reuters story details Tesla’s history of burning through cash and troubled financial times. Yet USA Today reported in its story: 

Perhaps no start-up is more emblematic of the ever-green wave than Tesla. The Silicon Valley automaker, flush with $50 million in funding from Daimler in 2009, capped 2010 with a wildly successful IPO. It says sales of its Roadster electric car are brisk. (More than 1,650 units of the model — starting at $109,000 — have sold in more than two years.)

Most of Tesla’s $49 million in first-quarter revenue came from sales of Roadster and partnerships with Daimler (batteries) and Toyota (co-design of the electric version of the RAV4), says Tesla spokesman Ricardo Reyes.

Then there’s the alleged promise of solar thermal company BrightSource Energy, which USA Today reports will file an IPO of up to $250 million of its common stock later this year, and of which one venture capitalist said, “This is an exciting time for clean tech.” BrightSource was given a $1.37 billion Department of Energy grant for a single solar power plant in California. The grant enabled the company to raise other outside funding, including investment from Google.

So the McPaper’s reporter is delivering only good news and is leaving out some vitally important context. He certainly ignored any notation of government funding for these “Green” companies.

Worse, the Toyotas, Googles, and GEs of the world – whose earnings are very healthy – have no reason to benefit from government support for their pet “Green” projects. If Eric Schmidt and Jeffrey Immelt want to see “clean” tech thrive, let them back electric cars and solar farms with their own money, and leave taxpayers out of it. Then let’s see how much cheerleading USA Today does over exuberant investment in “clean” tech.

Paul Chesser is associate fellow for the National Legal and Policy Center and is executive director of American Tradition Institute.