Why does Tesla Motors, the ambitious Silicon Valley electric car company, need a $465 million taxpayer loan if it can raise hundreds of millions of dollars from private interests? Its latest round was a cool $82.5 million from a private investor group led by Fjord Capital Management.

"It was an opportunistic investment," Elon Musk, the former Paypal honcho and CEO of Silicon Valley-based Tesla told Bloomberg on Tuesday at the Frankfurt Motor Show.

"We were not looking for money," Musk said. Indeed. The Department of Energy just approved a $465 million taxpayer loan to Tesla as part of the federal government's green tech stimulus. The loan will apparently be doled out to Tesla on an "as needed" basis. But why?

The Fjord Capital investment is sure to re-ignite questions about why Tesla Motors needs a $465 million taxpayer loan in the first place, (it's actually two loans, to be precise), if it can raise hundreds of millions in the private equity market. In May Tesla received a $50 million investment from Daimler (DAI), the German automaker that produces the Mercedes line.

Tesla has already raised over $200 million in private venture capital from prestigious VC's like Draper Fisher Jurvetson, cash-rich companies like Google (GOOG), and the likes of JP Morgan Chase (JPM). Tesla Roadster owner and Google co-founder Sergey Brin is worth $10 billion.

In fact, Silicon Valley is awash in cash. Palo Alto-based heavyweight Accel Partners closed a $1 billion round for two funds last December. Google itself is sitting on $10 billion in cash. If Elon Musk can raise $300 million from private investors, why does he need an additional "as needed" $450 million loan from the taxpayers?

Tesla's loan is part of the government's Advanced Technology Vehicle Manufacturing Program, a $25 billion fund that aims to get fuel-efficient vehicles to customers faster, according to the company.

Tesla's proselytizers -- include many Silicon Valley luminaries on the waiting list for the company's super-cool and expensive electric sports-cars -- usually frame the government loan in terms of the public interest, frequently citing America's gas guzzling addiction to foreign oil imported from unfriendly foreign countries. American taxpayers should applaud government support for domestic companies -- especially in the auto space -- developing technology which weans America off foreign oil, these backers say.

When Tesla was lobbying for the federal loan this spring, I interviewed early Tesla venture capital funder and Silicon Valley heavyweight Steve Jurvetson of Draper, Fisher, Jurvetson. I asked him straight-up why Tesla needed a giant taxpayer loan. Don't Silicon Valley venture capitalists have enough dough to fund a truly good idea?

"No," Jurvetson told me at the time. "We only have enough capital to help a company get started. Some companies, like Hotmail and Skype and Baidu (BIDU), only need a little capital to get going. Car companies are a different story altogether."

"For big projects, like the Tesla manufacturing plant, or a solar thermal installation, companies have to turn to financing sources outside of VC," Jurvetson said. "We invest in companies when they are still in the proverbial garage. Other institutions have to finance the roads and highways."

At the time, a Tesla spokesperson told me that 75 entities had applied for the loans, "including many Silicon Valley tech companies, Detroit automakers, suppliers, battery technology companies, etc. The terms of the ATVM are very favorable, particularly in a downturn when VC and other private equity financing becomes tight."

Reached at the Frankfurt auto show Tuesday, a Tesla spokesperson told DailyFinance, "To clarify, Series F [the Fjord investment and a new infusion from Daimler] is not 'hundreds of millions.' More important, the ATVM program was created specifically to fund manufacturing projects that lead to more fuel efficient cars. By contrast, the Series F will be used to accelerate our retail strategy--not for manufacturing."

"We are not disclosing valuation or percentages but it is an increase from previous valuation," Tesla's spokesperson said.

Critics have blasted the DOE loan as everything from outright socialism to a taxpayer boondoggle, but the most persuasive arguments point to the fact that the loan doesn't give taxpayers any private equity or stake in the company.

Musk has been explicit about his dreams of taking the company public, and the company's early venture capital backers are surely looking for a rich exit IPO. But it looks like Musk and the other private investors want it both ways: They want taxpayers to finance (in large part) the company's start-up growth and scaling up, but then shut out taxpayers when it comes to going public.

If Tesla succeeds, Musk and the other early private investors are poised to reap drastically higher returns than taxpayers, which presumably only will earn the interest on the loan, (assuming it is repaid). The Tesla spokesperson refused to disclose the terms of the DOE loan, "at DOE request."

If taxpayers are going to loan the company $465 million in start-up money alongside hundreds of millions of dollars from private interests, why not allow taxpayers to do so on the same terms and with the same prospects as other early investors?


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