Nevada's Tesla Plant Win Comes With Steep Price Tag

Tesla Battery Factory
Cathleen Allison/APTesla Motors CEO Elon Musk, left, and Nevada Gov. Brian Sandoval at a press conference Thursday announcing the new site for the company's new $5 billion car battery plant.
By SCOTT SONNER and JUSTIN PRITCHARD

CARSON CITY, Nev. -- Gov. Brian Sandoval announced Thursday that Nevada won a high-stakes battle with four other states for Tesla's coveted battery factory, but the win comes with a hefty price tag -- up to $1.3 billion in tax breaks and other incentives over 20 years that state lawmakers still must approve.

Sandoval revealed terms of the deal he negotiated with the electric car maker at a ceremony on the Capitol steps attended by Elon Musk, CEO of California-based Tesla Motors (TSLA). Musk confirmed the search was over for a home for his $5 billion lithium battery "gigafatory," which the company hopes will bring it closer to mass production of a more affordable electric car.

The Republican governor called it a "monumental announcement that will change Nevada forever" and asserted that it would create more than 22,000 jobs and pump $100 billion into the state's economy over the next 20 years -- claims that critics said were exaggerated. Sandoval didn't mention the total value of the incentive package in his remarks but nonetheless anticipated potential criticism for the size of the package.

"Even the most skeptical economist would conclude that this is a strong return [on investment] for us," he said about the deal that already has drawn outside criticism from both the political left and the right that the tax breaks are too generous. So far, it has not encountered significant opposition from state lawmakers who must approve the incentives.

Musk told the audience that Nevada didn't offer the biggest incentive package among the five states that tried to lure the factory, though he didn't specify which did among California, Texas, Arizona, New Mexico and Nevada.

The most important considerations were not incentives, he said, but rather a high confidence that the factory will be ready by 2017, followed by assurances that batteries can be produced cost efficiently.

"It's a real get-things-done state," Musk said in explaining how Nevada prevailed in what was a "relatively close" competition.

Musk, who arrived from London just before the ceremony, briefly bungled the pronunciation of "Nevada." But he recovered and twice received standing ovations from more than 200 dignitaries.

Later, Musk told reporters that Tesla would stop looking for another state as a backup. "Nevada is it," he said.

Special Session

The governor will call a special session of the Legislature as early as next week to seek approval of the incentives. Legislative leaders have reacted largely favorably at first blush.

House Speaker Marilyn Kirkpatrick, D-Las Vegas, said it represents "a significant opportunity to make a major stride to boost the economy" in a state that led the nation in unemployment during the depths of the Great Recession.

"I look forward to receiving the necessary information so the Legislature can meet and take necessary action to support this major industry coming to Nevada," she said in a joint statement with Sandoval and Musk that the governor's office issued Thursday.

Tesla's choice for the facility gets it closer to mass producing an electric car that costs around $35,000 and can go 200 miles on a single charge. That range is critical because it lets people take most daily trips without recharging, a major barrier to the widespread adoption of electric vehicles.

The factory would bring down the cost of batteries by producing them on a huge scale. The facility would be approximately 10 million square feet, equivalent to about 174 football fields, and be located at an industrial park about 15 miles east of Sparks, a Reno suburb founded as a railroad town more than a century ago.

The ultimate cost of the incentive package to Nevada taxpayers depends on how much economic activity the factory generates. On the low end, it could be worth $865 million, according to Steve Hill, executive director of Sandoval's Office of Economic Development.

Hill projected the factory would generate roughly $5 billion a year for 20 years for Nevada's economy and directly or indirectly create 22,000 new jobs over two decades. That includes an estimated 6,500 permanent jobs at the factory with hourly wages above $25 and a peak of 3,000 construction jobs leading up to the opening of the plant in 2017.

Large Subsidy

He also that even with the tax breaks, the project should generate approximately $1.9 billion in tax revenue for all levels of government -- state, local and school districts.

The largest subsidy for an auto-related plant was $1.3 billion that Chrysler received in 2010 to build an assembly plant in Michigan, according to the research group Good Jobs First, which tracks large incentive packages by states.

The group's executive director, Greg LeRoy, said Sandoval's projections of job creation and return on investment for the Tesla factory were implausibly rosy.

The governor said that every $1 Nevada invests in the effort will bring $80 back to the economy. LeRoy called that assertion "off the charts false." What he described as the proper calculation of tax breaks to tax revenues would put the return on investment at $2 or less for every $1 invested.

LeRoy also said the factory would create no more than about 10,000 permanent, non-construction jobs outside the factory, bringing the total to 19,500 -- not the 22,000 that Sandoval's administration claimed.


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drbuckles

The factory will nut just be producing batteries for cars but for commercial and residential use as backup systems and systems that store electricity to be use when not being generated by solar or wind. It's the future along with other forms of clean energy like hydrogen that is being developed and has hydrogen stations already in California. Oil is reached it's peak and fracking is a bust as the wells aren't producing like they said they would but dry up early and often.

September 08 2014 at 1:22 AM Report abuse rate up rate down Reply
elendil3136

$100 billion benefit from a company that will be lucky to sell 30,000 cars this year, and by some analysts expectations, may be lucky to ever top 250,000? Politically motivated wishful thinking at its best. That Tesla is capitalized at nearly $30 billion dollars (GM is $55 billion, and Ford is $66 billion for comparison) shows how seriously overhyped this company is.

Both GM and Toyota have proven clearly that purely electric cars using current technology are nothing more than niche vehicles. Granted that the tech will improve slowly, and that economies of scale will bring prices down somewhat, but gas prices will have to top $5 a gallon and stay there, in order for the public to abandon the internal combustion engine. We all know that the oil companies won't let that happen anytime soon.

September 08 2014 at 12:53 AM Report abuse rate up rate down Reply
liemc

First, where's the demand for Tesla batteries? How many of you are trading in your car for a battery driven one? What happens when the company downsizes or goes bankrupt? Answer, you have 10,000 more unemployed in the State to take care of. Same thing that happened when the construction boom cratered, these people didn't leave they just stayed & burdened the State.. Second, this will not increase Lithium mining in Nevada unless there is a law requiring US mined Lithium only. China has 90% of the worlds supply of Lithium & other rare earths & can import to the US for half the cost of domestic Lithium.

September 07 2014 at 12:30 PM Report abuse rate up rate down Reply
2 replies to liemc's comment
raidrmik67

So don't bother? Just ship the jobs off to China?

September 07 2014 at 7:41 PM Report abuse rate up rate down Reply
bill_jones86

another what if we wont know all this till this plant is built and operated.

September 08 2014 at 1:06 AM Report abuse rate up rate down Reply
korrectionelecshun

as senile hairy reed who needs to be removed from office in handcuffs along with ovomit ,fought to keep it out of Nevada.~~THANK GOD FOR THE G.O.P.

September 07 2014 at 9:53 AM Report abuse +1 rate up rate down Reply
1 reply to korrectionelecshun's comment
bill_jones86

reid is a national disgrace. what do u expect from someone who was born in a mine shaft

September 08 2014 at 1:08 AM Report abuse rate up rate down Reply
ranger197172

Won't matter what he does if Lake Meade goes dry.

September 07 2014 at 6:43 AM Report abuse rate up rate down Reply
storytellerjmc

The 2014 version of the hype 30 years ago - 'Casino gaming will revive Atlantic City' - and now AC
is imploding; half of the planned/constructed casinos are closed and/or demolished. The AC
Expressway, built so gamblers could easily drive across the State, is never crowded. The "new"
railroad station hosts fewer than 30 3 car trains per day - and they carry employees, not visitors.
The Playground of the World will resume its plunge into obscurity. What was the famous quote
from P.T. Barnum ?

September 06 2014 at 6:05 PM Report abuse rate up rate down Reply
2 replies to storytellerjmc's comment
Bob

Atlantic City had its run, its demise is that every state is broke and started casinos everywhere to make money. Reno and northern Nevada are also hurting in the casino business due to all the Indian casinos in Cali. I don't like the high tax breaks of 1.3 billion pver the next 20 yrs but the 10,000 manufacturing jobs sure will help with Nevada's income in the long run. Governor Sandavol has been an outstanding governor for our state, especially having to work with U.S. biggest idiot, Harry Reid.

September 06 2014 at 6:35 PM Report abuse +1 rate up rate down Reply
1 reply to Bob's comment
bill_jones86

better to see how this plant and its operations fare than have nothing going on at all. so we lose some tax dollars u have to give and take. what i find humurous is some democrats are upset at the loss of tax dollars. guess they cant use that lost revenue to hand out to the poor welfare types for votes when they have always stood for jobs and the working people. vote gop in nov

September 08 2014 at 1:11 AM Report abuse rate up rate down
lucasca

Would you suggest we all sit around and do nothing?

September 06 2014 at 9:42 PM Report abuse rate up rate down Reply
publius1

Tesla, another welfare company. If Tesla wants tax breaks then the citizens should receive Tesla stock in return. Yeah, create good paying jobs, until Tesla decides they are paying too much and demands labor concessions. What a racket. Hey Nevada, I'm thinkin go moving my company with its two jobs there, How much will you pay me?

September 06 2014 at 5:02 PM Report abuse rate up rate down Reply
1 reply to publius1's comment
Bob

Ask obummers big buddy who's moving burger king to Canada.

September 06 2014 at 6:36 PM Report abuse +3 rate up rate down Reply
ddstan1120

Reid is on a land grabbing mission for the federal government so his son can use the land for his personal "solar energy" factory, so everyone must know that Reid's dirty fingerprints will be all over this project too. Eventually, the taxpaying public will be stuck with the bill on this too.

September 06 2014 at 3:43 PM Report abuse +2 rate up rate down Reply
1 reply to ddstan1120's comment
gleetahoe

Most of the benifit package to Tesla is in the form of tax reduction. When you leave the Reno/Sparks area heading east, your next big city is Salt Lake. Tesla is going about 17 miles east of Reno where there is nothing. Present tax near zero. Tesla tax also near zero for 20 years. How will the public get stuck with a bill. Lithium is mined in Nevada. A rail line runs near the Tesla Fremont factory already. Average pay in the region is $15-20 / hour. Tesla average pay about $25. The region has near surface geothermal, and lots of sunshine. Expect jobs getting those up and running, as well as direct jobs by Tesla, and mining of lithium jobs. Also, expect many jobs for suppliers such as stores for the many workers. Even the negative groups are counting nearly 20,000 new jobs. When you look at the alternative, Nevada kicks butt by utilizing a desert and creating an industry.

September 06 2014 at 8:29 PM Report abuse +2 rate up rate down Reply
1 reply to gleetahoe's comment
jdshuttleworth

Not saying the deal doesn't make sense on the surface, but I still think the tax payer is footing the bill for Tesla, both short term and long term. Tesla will be the recipient of corporate welfare as Nevada throws money at them. Plant will not last 20 years as technology changes. Then you have to support all the people who lose their jobs when Tesla closes the plant. Never makes sense to give away the store. All parties need to contribute.

September 07 2014 at 8:30 PM Report abuse +1 rate up rate down
knarf714

First it is not costing Nevada anything, tax breaks for bringing jobs and revenue in aren't a cost. there is nothing coming in from Tesla now so any tax revenue is a plus, whether it's 22,000 jobs or 19500 jobs it is still that many more jobs than there are now and all those people will pay taxes and spend money in Nevada. To call not taxing a company a subsidy is ridiculous.at best.

September 06 2014 at 12:23 PM Report abuse +4 rate up rate down Reply
1 reply to knarf714's comment
elendil3136

Where did you get your economics degree? From a Cracker Jack box? Who do you think is going to get stuck with the infrastructure costs? Those could well be in the hundreds of millions, and I promise that Tesla won't pay a dime of it.

September 08 2014 at 1:03 AM Report abuse rate up rate down Reply
billharn

Hey, Sandoval is a politician. Anything he says is suspect. You expect him to tell the truth about the paltry return on the taxpayers subsidy for billionaires? Don't hold your breath. Just wait and see. When Sandoval leaves politics, he will find several cushy directorships with some big corporations as compensation for delivering the taxpayers money into the billionaires pockets.

September 06 2014 at 6:27 AM Report abuse rate up rate down Reply
1 reply to billharn's comment
jpark377

Look at Blanche Lincoln: she was a terrible senator who was overwhelmingly thrown out of office. Now Democrat Lincoln is an overpaid executive at Walmart. She should really be working at a car wash, or working in a hot dog wagon, but instead she gets a "golden parachute" courtesy of the Walmart Corpration. This is another example of how doling-out corporate welfare benefits these politicians personally.

September 06 2014 at 12:34 PM Report abuse +3 rate up rate down Reply