**Elon Musk - Testimony before the Senate Energy & Natural Resources
Committee**

**March 7, 2007**

Mr. Chairman and Members of the Committee, thank you for inviting me to
testify today on the subject of advancing the commercialization of
advanced energy technologies. The efforts of this Committee properly
reflect our country's renewed emphasis on addressing global climate
change and dependence on oil from nations that do not always have our
best interests in mind.

I credit the Committee with recognizing in the theme of today's hearing
that the fundamental technologies required to address those challenges
already exist in our national labs, universities and private sector. The
Tesla electric car is stark evidence that the inventions necessary to
develop viable alternatives to oil based automobiles are in place.

Tesla's initial product is a high-performance electric sports car called
the Roadster, but the intent is to build electric cars of all kinds,
including low-cost family vehicles. As our unveiling of the Tesla
Roadster has demonstrated, reports of the death of the electric car have
been greatly exaggerated. Moreover, the Roadster defies all conventions
associated with environmentally friendly cars, particularly those of a
purely electric nature. My apologies for the brief commercial, but to
understand what is possible, I must present the key facts of the
vehicle:

-   0 to 60 mph in 3.9 seconds

-   250 mile EPA highway range

-   135 mpg equivalent, per the conversion rate used by the EPA

-   \$3 for a full charge

-   Fully DOT-compliant: crash tested, with airbags, crash structures,
    etc.

-   \$92,000 price

The Tesla Roadster is designed to beat a gasoline sports car like a
Porsche or a Ferrari in a head-to-head showdown, but has more than twice
the energy efficiency of a Prius. In other words, it is a great sports
car without significant compromises. Now, some may question whether this
really does any good for the world. Are we really in need of another
high-performance sports car? Will it actually make a difference to
global carbon emissions and our oil dependence?

Well, the answers are no and not much. However, that misses the point.
Almost any new technology initially has high unit cost before it can be
optimized, and this is no less true for electric cars. The strategy of
Tesla is to enter at the high end of the market, where customers are
prepared to pay a premium, and then drive down market as fast as
possible to higher unit volume and lower prices with each successive
model.

Tesla's second model will be a large four door family car starting at
\$50,000 and the third model will be a smaller, more affordable four
door. In keeping with a fast-growing technology company, all free cash
flow is plowed back into R&D to drive down the costs and bring the
follow-on products to market as quickly as possible. When someone buys
the Roadster sports car, they are actually helping pay for development
of the low cost family car.

So the question becomes what public policy initiatives would be
effective in accelerating the development of companies like Tesla Motors
and what programs would inspire other actors to enter the arena. I
believe that the strategy boils down to three simple elements: lower the
cost of production capital, accelerate innovation and catalyze consumer
acceptance.

The most important area to which I would direct the Committee's
attention is the challenge of financing the mass market
commercialization of new innovations in alternative technology.
Specifically, how can companies like Tesla Motors accelerate the
substantial investments in manufacturing and technology optimization
that are necessary to bring electric vehicles to the average consumer?
While the scale of various forms of equity investment in green
technology has grown significantly in recent years, these sources of
capital are expensive and volatile.

Debt financing would be a powerful catalyst for companies contemplating
large scale production. However, in the absence of government loan
guarantees or other sources of credit surety, the cost of such debt is
prohibitive. The Department of Energy's Loan Guarantee Program would,
properly conceived and executed, provide an ideal vehicle for early to
mid stage innovators to access the necessary production capital at a
reasonable rate of interest.

The delay of the Loan Guarantee Program means that the tools for
executing these programs are not yet in place at the federal level. Our
government has a number of departments and agencies, ranging from the
Small Business Administration to the Department of Agriculture to Fannie
Mae, that regularly engage in lending and other credit related
activities. To address America's pressing need for affordable clean
energy solutions, I urge you to provide maximum support for the DOE Loan
Guarantee Program.

As another means of accelerating innovation, I would counsel the
Committee to explore the use of competitions such as the X Prize. This
is a no lose proposition for the American taxpayer. Unlike cost plus
contracting, where failure is often perversely rewarded with more money,
failure to win a prize costs nothing.

Offering prizes of meaningful size for achievements in alternative
energy could pay substantial dividends. We are beginning to see how
powerful this can be by observing the success of the Ansari X Prize, a
prize for suborbital human transportation. It was a very effective use
of money, as far more than the \$10 million prize was spent by the
dozens of teams that competed to win. At least as important, however, is
the spirit and vigor it has injected into the space industry and the
public at large.

Beyond space, as the Committee is no doubt aware, history is replete
with examples of prizes spurring great achievements, such as the Orteig
Prize, won by Charles Lindbergh for crossing the Atlantic nonstop by
plane, and the Longitude prize for ocean navigation.

In closing, I would direct the Committee's attention to the need to
incent consumer acceptance of the alternative energy technologies that
are currently emerging. The rate of growth of these technologies is
reliant in large part upon the degree to which these technologies become
affordable.

Incentives such as income tax credits for the purchase of new
technologies are proven devices for spurring the adoption of hybrid
vehicles and solar installations. I urge the Members of the Committee
and the Senate at large to support the current effort to replace the
recently expired electric vehicle tax credit with a meaningful tax
credit that will catalyze the market for electric vehicles.

A tax credit is particularly necessary in the case of electric vehicles,
because pricing, the normal economic mechanism that causes a shift in
use, is broken in the case of oil consumption. The price of gasoline
would actually be far higher than what you see at the pump if it
reflected the true cost of climate change and our nation's vulnerability
to the whims of oil exporting nations.

Thank you for your time.