The Biggest Competitive Advantage
At the risk of sounding cynical, I thought The Wall Street Journal published a rather naive editorial the other day. Discussing accusations that notoriously touchy Tesla CEO Elon Musk is weaponizing the newly created Department of Government Efficiency (DOGE) to “benefit his businesses,” they note that Tesla is actually a big loser when it comes to the recent freeze that DOGE put in place on “electric-vehicle charging grants.” After all, Tesla was the third biggest recipient of these grants to date with a $31M take.
But let’s put that number in context. Tesla, on its most recent balance sheet, reported more than $36B of liquidity ($16B of cash and $20B of short-term investments i.e., CDs, treasuries, and commercial paper that are all easily redeemable for cash). Will losing access to an immaterial (for Tesla) amount of government funding affect the company at all?
Now, it’s no secret that Tesla benefited from government assistance in its early days (low-cost loans to build production facilities and tax credits to buyers to spur demand), but at this point, with a $1T market cap and the ability to seemingly sell as much equity and therefore raise as much capital as it wants, the company controls its own destiny. That, however, is not true of its competitors who need to rely more heavily on government funds to invest in their EV businesses. In other words, while freezing “electric-vehicle charging grants” may weaken Tesla’s strategic position on an absolute basis, it significantly strengthens the company relative to its peers.
That’s a benefit!
Something I learned a long time ago is that the biggest competitive advantage a business can have is having access to capital when its competition does not. This is why we don’t lever our businesses at our Permanent Equity. While that’s probably a drag on our returns when money is cheap and everyone else is borrowing, it’s been advantageous – like say during 2020 – when markets freeze up and our competition has to make cuts while we can continue to invest in growth.
So, I don’t know that The WSJ’s example is such a good rebuttal to the accusation that Musk is using DOGE to benefit his businesses. That’s because cutting off free government money won’t matter to a well-established business (like Tesla is now) but might be the difference between solvency and bankruptcy for a cash-strapped start-up (like Tesla was in the past). I know that sounds cynical, but when it comes to the notoriously touchy Mr. Musk, I don’t know that that’s not an unfair thing to be.
– Tim
