Government-centered startup business models, part three

posted: January 17, 2021

tl;dr: Some more examples where government is crucial to the success or failure of startups...

(continued from part two):

Here are more quick takes on various high tech startup companies, and a few industries, where government is crucial to the business model, this week focusing on the transportation industry.


Tesla makes fantastic cars. Every time I ride in a Tesla, I’m amazed at the quality and sturdiness of the vehicle (especially in comparison to the Toyota Prius), the smooth and powerful acceleration, the quietness of the ride, and the sophistication of the software, although I’ve not yet experienced Tesla’s autopilot. Someday I envision getting an electric vehicle, although Tesla’s current lineup is overkill for what I need, which is just a way to putt around town. Electric cars, like the electric-only house that I currently live in, can help reduce carbon dioxide levels in the atmosphere if the ultimate source of the electric power is something other than fossil fuel, and if the full environmental costs that go into making the car and the infrastructure to support it are properly taken into account.

At first glance Tesla might appear to be a product-focused startup company like those from decades past that I spoke of so fondly in part one of this series. Yet because the government wants to hasten the migration to electric cars, the government is integral to Tesla’s business model and effectively funnels money to the company.

There are two major ways that the government provides support to Tesla. One way is through tax credits and other incentives to Tesla buyers tax credits reduce buyers’ tax bills, as long as they spend the money credited on a Tesla or other electric car. The buyer pays money to Tesla instead of the government, and since the money otherwise would have gone to the government, it’s effectively a way of sending government money to Tesla.

The other way is through pollution taxes and transferable credits assessed by the government on all car producers. Since Tesla does not produce any fossil fuel-based cars, it has excess credits that it is allowed to sell to other producers. In this Reuters article on Tesla’s Q3 2020 financial results, it states: “Revenue from the sale of regulatory credits made up $397 million. Without that revenue, Tesla would not have achieved a profitable quarter.” Tesla’s profits made the folks at Standard & Poors comfortable with adding Tesla to the S&P 500 index, and just this past week Elon Musk became (on paper) the richest person in the world. There is little doubt in my mind that Tesla stock is in a bubble, and I know how bubbles end, but Tesla will likely continue as a company, just like Cisco is still a multi-billion dollar company two decades after its stock price peaked in the dotcom boom.

There’s another area where the government impacts Tesla: the product liability of Tesla’s autopilot functionality when Tesla cars are involved in accidents while in autopilot mode, and the payments that Tesla might have to make in cases where they are found to be liable. However, I don’t think autopilot mode is crucial to the short- or medium-term success of Tesla as a company. If product liability became a major issue for Tesla, they could just disable autopilot mode.

I’m by no means saying that tax credits to electric vehicle buyers and pollution taxes on vehicle producers are bad things. I’m just pointing out that they are integral to Tesla’s business model, and without them, I doubt that Elon Musk would today be the richest person in the world.


In April 2017 I posted on why I am a drone skeptic. I’m still a drone skeptic, and I note that Amazon, Starbucks, and my local pizza place are still not delivering to my home via drone. Drones will always have a serious and potentially fatal failure mode, which is falling from the sky and dropping the entire weight of the drone and whatever it is carrying on someone’s head. Drones can fall due to a variety of problems with the drone itself, unforeseen environmental conditions, or due to the deliberate actions of others, such as criminals attempting to steal what the drone is carrying. Sorting out the liability in these situations is difficult, but when someone is killed or seriously injured by a drone, the drone manufacturer should expect to be party to a lawsuit.

The government, through the Federal Aviation Administration, also regulates the nation’s flight space. Drones are not allowed to fly everywhere, and they must be flown with human supervision in many cases.

Drones will continue to be used in small scale applications, such as taking video and pictures of houses for sale, inspecting roofs and other places that are hard for a human to get to, and making some spectacular footage for tourist videos and movies. But I don’t see the FAA flight space regulations being relaxed, and the liability issues being avoided, to permit widespread low-cost delivery by drone.