Tesla Motors dealing as states play factory poker
September 1, 2014
Incentives states can offer to get Tesla factory
LOS ANGELES (AP) — Five states are on the short list for a $5 billion factory that Tesla Motors plans to build so it can crank out batteries for a new generation of electric cars.
The package of economic incentives that each state offers will help determine where Tesla builds the factory — Nevada, California, Texas, Arizona or New Mexico. Tesla CEO Elon Musk has said the winning state will shoulder about 10 percent of the total cost, meaning at least $500 million worth of incentives.
Tesla already has done initial preparatory work on a potential site in Storey County and plans to prepare one other site in coming months. A final decision is expected by year’s end.
While officials in each state are keeping confidential the specifics of their packages, here is a look at the types of incentives and advantages each state can offer.
Few taxes: No personal income tax, franchise tax, estate tax, inheritance or gift tax, and no taxes on corporate shares. No corporate income tax, although voters will decide in November whether to implement one to finance education.
Other tax credits or breaks: Up to a 50 percent abatement on personal property taxes for up to 10 years; a partial abatement on sales and use taxes on capital equipment purchases; and a deferral of sales and use taxes on capital equipment.
Worker training subsidies: Up to $1,000 per employee for job training if the company provides a 25 percent match, makes a five-year business commitment and pays at least hourly minimum wages.
Other advantages: Proximity to the assembly plant in Fremont, California, where Tesla makes its cars; significant deposit of lithium, which is essential to making the batteries.
Tax and hiring credits: Legislation passed this year offers a tax credit of 17.5 percent of wages for full-time employees for 15 years, totaling up to $31 million a year that could be split between a battery manufacturer and other industries including aerospace manufacturing. A hiring credit of 35 percent of wages is available if Tesla locates in a region that has high unemployment and poverty, for wages above certain benchmarks, until 2029.
Sales tax exemption: New legislation waives the state’s share of sales tax, 4.19 percent, on the first $200 million in equipment purchased.
Waiver of environmental rules: Some lawmakers are advocating waivers on a host of California’s complex environmental review laws that would allow for much quicker building permitting.
Other advantages: Tesla already has its headquarters and car assembly plant in the San Francisco Bay area.
Incentive funds: The Texas Enterprise Fund regularly gives companies incentives worth tens of millions of dollars to open facilities in the state, including $15.3 million to SpaceX, a commercial rocket company where Tesla CEO Elon Musk is also chief executive. The Texas Emerging Technology Fund, also run out of Gov. Rick Perry’s office, has given $205 million to fund scores of technology startups.
Other incentives: The state also offers tax refunds, exemption from state sales and use tax on electricity and natural gas in manufacturing.
Other advantages: Cities and counties have made direct pitches to Tesla, highlighting for example how San Antonio owns its own utility and can provide solar and wind energy.
Various tax credits or breaks: For investments by manufacturers, and the creation of high-wage jobs and renewable energy.
Worker-training subsidies: The state pays up to 75 percent of new worker salaries for up to six months.
“Closing fund”: Local governments can tap public money to finance infrastructure improvements, such as roads and utilities, around a factory. The Legislature provided $15 million for the current fiscal year.
Other advantages: State officials also tout a diminishing corporate income tax rate, low property taxes, rail connections to California and competitive electricity rates.
Job training grant: The state may provide new employers up to 75 percent of the cost of employee training.
Tax credits: A company can receive tax credits of up to $30 million for new manufacturing facilities, and a separate tax credit of $3,000 per new employee in each of the first three years. Tesla could qualify for a $5 million tax credit if it installs at least $300 million worth of renewable power capacity.
Property tax breaks: A factory that is placed in one of seven foreign trade zones in the state gets a break of up to 80 percent.
Sales taxes are waived for machinery or equipment used directly in manufacturing, and electricity or natural gas used for businesses engaged in manufacturing.
LOS ANGELES — From the start, little has been typical about Tesla Motors' plan for a $5 billion factory to make batteries for a new generation of electric cars.
It's not just the project's massive scale, the cutting-edge technology, or even the bonanza of 6,500 good-paying jobs.
It's how Tesla is deciding where to build.
Through a series of unusual plays, Tesla has five states bidding up subsidy packages to land the coveted plant. The winner is expected to offer the luxury car-maker publicly financed incentives exceeding a half-billion dollars.
Tesla signaled this would be no ordinary competition last fall, when it gathered economic development officials from seven Western states and unveiled its vision for a "gigafactory." ("Giga" refers to the large amount of power that batteries produced at the plant will store.)
This spring, CEO Elon Musk announced Tesla would take the extremely unusual step of spending millions to prepare sites in two states — or perhaps even three — before the finalist was chosen. Then, over the summer, Musk said the winning state would pitch in about 10 percent of the cost, effectively signaling a minimum bid of $500 million.
"We don't usually see companies setting a floor at which states will be considered," said Leigh McIlvaine of the research group Good Jobs First, which tracks large subsidy packages by states.
For all the public anticipation Musk has created, much about the process remains secret.
While the Tahoe Reno Industrial Center in Storey County is one known site, the other — or others — remains a mystery. Tesla has asked states not to discuss their offers, and states aren't talking.
The effect is a game of high-stakes poker, with the states as players and Tesla dealing.
"You can't see any cards at all. Do you stay in or not, push more chips onto the table or fold?" said Kim Hill, who studies incentives at the nonprofit Center for Automotive Research in Michigan.
The factory promises something that every state wants but rarely gets these days: thousands of good-paying factory jobs and all the residual economic benefits they bring.
So far, Nevada, California, Texas, Arizona and New Mexico remain contenders. They have passed tax breaks, promised worker-training funds or proposed shelving environmental regulations that could slow the factory's construction. There is talk of special legislative sessions to sweeten the bids.
When The Associated Press filed public records act requests for documents about the competition with each of the five finalist states, none released much useful information and most refused to release anything at all, citing the competitive need to keep their offers secret.
In one glimpse behind the curtain of confidentiality, California provided an email from a Tesla official to the governor's senior adviser for jobs and economic development. It contained a newspaper story speculating on a possible site and said, simply: "This is unhelpful." What might be unhelpful was unclear, and the governor's office of business and economic development refused repeated requests to discuss its pursuit of the factory.
Tesla needs the factory to make cheaper batteries for its Model 3, a mass-market electric car the company hopes to sell by 2017 for around $35,000. Currently Tesla only offers the Model S sedan, which starts at $70,000.
The tight production timeframe compels Tesla to prepare at least two sites, said spokesman Simon Sproule, who likened the approach to "an insurance policy."
Tesla will pay about half of the factory's cost; the other major investor is Panasonic, which will manufacture the lithium-ion battery cells and invest in equipment.
Musk has said to expect groundbreaking on at least one other site in coming months and a final decision by year's end.
The last comparable bidding frenzy for a factory, according to John Boyd of the New Jersey-based site selection firm The Boyd Company, involved competition to attract automaker Saturn in the 1980s, at the leading edge of the South's car manufacturing boom.
The competition for the gigafactory began at an October meeting at Tesla's auto assembly plant in the San Francisco Bay Area city of Fremont — a rare approach to opening a site selection process. Tesla executives laid out what a winning bid must have: "Green" energy such as solar or wind at a low cost, an affordable and well-trained labor force, good transportation links to Tesla's Fremont assembly plant. And a robust package of incentives.
Tesla required states to submit their proposals within three weeks, an early indication of influence the company would wield. "Given the scale, it was a very short turnaround time," said Susan St. Germain, the lead business recruiter for Washington, who attended the meeting but whose state did not make the short list.
Along the way, there has been plenty of political theater. Texas Gov. Rick Perry drove to California's state Capitol in a Tesla and California state Sen. Ted Gaines delivered a gold-painted shovel to Tesla headquarters. Cities in both states pitched Tesla directly. Tucson, Arizona, sent the company a preapproved building permit.
The director of the industrial park outside Reno where Tesla prepared land said he's seen plenty of secrecy before, but never anything like this.
"It has been a very, very unusual transaction," said Lance Gilman of the Reno Tahoe Industrial Center, which at 167 square miles is the nation's largest industrial park. "They have played their cards so close to the vest."
Texas has done business with Musk before. The state is providing his commercial space company, SpaceX, $15.3 million in incentives to develop a rocket-launching site. The money comes from what is regarded as the nation's most generous "deal-closing fund" of incentives, which has doled out $487 million since 2003.
New Mexico's governor has said that, if needed, she will ask the Legislature to consider changes in law to help land the plant. California Gov. Jerry Brown got lawmakers to pass language helping battery manufacturers, and Musk said Brown is working to address his concerns that California's arduous environmental reviews would make the project's three-year timeframe impossible to meet.
Nevada may hold a special session of its part-time legislature to discuss incentives.
"There's kind of a bidding war out there with the state of California and the state of Texas," said U.S. Senate Majority Leader Harry Reid, D-Nev. "We'll have to wait and see. I'm not going to start counting the jobs until it happens."