Huge Tax Breaks Overshadow Tesla’s Gigafactory Deal

Tesla Motors announced late last week that it had chosen a location near Reno, Nevada, for its highly-anticipated gigafactory. The state-of-the-art manufacturing plant will assemble lithium-ion batteries with build partner Panasonic.

The new factory will be built in the Tahoe Reno Industrial Center near Sparks. It represents a $5 billion investment, but also comes with huge state tax breaks reports the Los Angeles Times.

Tesla Gigafactory

Gigafactory Tax Incentives

The tax breaks include 10 years of property and modified business tax abatements and 20 years of sales tax abatement. The company will also receive a transferable tax credit of 5 percent for the first $1 billion it invests in Nevada. Beyond that, the next $2.5 billion invested would yield a further 2.8 percent tax credit. All told, Tesla’s investment may be offset by a whopping $1.25 billion tax relief scheme courtesy of Nevada’s taxpayers.

The agreement received the backing of Nevada Gov. Brian Sandoval and the state’s legislature, which still must formally approve the initiative. The Republican governor claimed that the deal will pour $100 billion into the state’s economy over the next 20 years, but critics from both sides of the political aisle have disputed his point. State lawmakers are expected to approve the incentives, what some insist are much too generous.

In light of the criticism, Tesla Motors CEO Elon Musk noted that Nevada was one of five states making offers for the gigafactory. He also said that Nevada’s incentive package wasn’t the largest received, but he did not identify the state with the better offer. Musk added that getting the factory online by 2017 was the deciding factor, not incentives, with Nevada officials successfully outlining how that would happen.

Thousands of New Jobs

Musk made his announcement with Sandoval at a press conference in Carson City. Said Musk, “The Gigafactory is an important step in advancing the cause of sustainable transportation and will enable the mass production of compelling electric vehicles for decades to come. Together with Panasonic and other partners, we look forward to realizing the full potential of this project.”

The factory is expected to create 6,500 direct jobs, each paying $25 per hour. The deal should create an additional 16,000 jobs for construction workers and suppliers. Tesla also committed to making a $37.5 million contribution to the state’s K-12 school system and will provide $1 million in funding to the University of Nevada at Las Vegas (UNLV) for advance battery research.

Tesla Model 3

When the factory is complete it will supply batteries for Tesla’s all-new Model 3 line, a mass-market sedan that will be priced around $40,000 or half the cost of the Model S. The company has already begun production of the Model X at its factory in Fremont, California, its first utility vehicle. Tesla started electric vehicle production in 2008 when it briefly built the Tesla Roadster.

States providing manufacturing subsidies is nothing new nor are charges of “corporate welfare” levied by both sides of the political spectrum.

On the right, Forbes magazine contributor Patrick Michaels of the Cato Institute said, “if Tesla would stop selling cars, we’d all save some money.” US taxpayers have been footing the bill to the tune of a $7,500 tax credit per vehicle as well as other incentives.

Left-leaning Mother Jones magazine is another Tesla critic noting, among other things, that the company narrowly avoided insolvency early on when it consumed tens of millions of dollars in deposits while delivering just 50 vehicles as the Roaster was introduced. The magazine has pointed out repeatedly that Tesla exists because of government largesse, including a lucrative government loan package. Musk has countered his critics by insisting the company would still be around with or without its US Department of Energy-backed loan.

Owning the Narrative

Critics aside, Musk has managed to control the narrative by focusing on Tesla’s innovations, the high-quality cars it builds and the positive impact its vehicles have on the environment. He may be a huge Obama supporter, but he also knows how to win support from Republicans, something he demonstrated quite capably with Gov. Sandoval.

Manufacturing plant photo copyright Tesla Motors.


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Author: Matthew Keegan
Matt Keegan has maintained his love for cars ever since his father taught him kicking tires can be one way to uncover a problem with a vehicle’s suspension system. He since moved on to learn a few things about coefficient of drag, G-forces, toe-heel shifting, and how to work the crazy infotainment system in some random weekly driver. Matt is a member of the Washington Automotive Press Association and is a contributor to various print and online media sources.

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