Friday, September 12, 2014

Tesla plant might be a risky bet | Last Word

When it was reported that the Tesla Motor Corp. would build a promised $5 billion lithium-ion battery “gigafactory” in Reno rather than San Antonio, our disappointment was salved by the rationale that Reno is close to the nation’s only lithium mine.

How can anybody compete with that?

But it turns out there may have been another factor that leads to another question.

The factor is that Nevada and Reno are reportedly giving Tesla a whopping $1.25 billion in tax breaks to lure them there.

That’s $1.25 billion.

With a B.

This is more than twice the $500 million Tesla founder and CEO Elon Musk said he was looking for, and I confess to being somewhat shocked by that figure.

The question this raises is whether anybody else would “want” to give Tesla $1.25 billion to build a plant that promises to employ up to 6,500 workers but could employ as few as 3,000.

The state of Nevada estimates the total jobs, including suppliers, at 22,000.

This optimistic forecast would put the cost at nearly $57,000 per job.

And Governor Brian Sandoval put the “economic impact” at $100 billion over the next 20 years.

“Economic impact” is one of those terms that should make us clutch our wallets.

It would be the safest bet in Reno to wager Sandoval has no idea how it was built.

Tesla’s Musk says Reno was not the highest bidder, but remember that he’s a car salesman.

I hope our bid was, at most, more along the lines of what the city, county and state gave Toyota to build its pickup truck factory here.

Toyota had two advantages over Tesla as a taxpayer investment.

One is that Toyota is the world’s largest carmaker.

It clearly is going to be around a while.

Tesla is a start-up, albeit one that has produced a spectacular all-electric sedan with a range of 200 miles – that sells for $90,000.

The new factory is to enable the company to build a smaller, $40,000 version.

That’s a noble goal and I fully expect to be tempted by it.

But it still is a pioneering proposition, and pioneers don’t always thrive.

Toyota’s other advantage is that its factory is building entire trucks, not just batteries.

The supply chain for a Tundra is much larger than the supply chain for a battery pack.

So how much did San Antonio and Texas pay and how much did we get?

The total package, including a railroad spur so that Toyota wouldn’t be held hostage by one railroad, was $133 million.

Bexar County later agreed to an additional $3 million tax abatement over 10 years when Toyota added a $100 million line to build its smaller Tacoma truck in addition to the Tundra.

So the total is $136 million in tax support for the Toyota plant – or less than one-ninth of what Tesla is getting from Nevada and Reno.

And for that we have 2,900 Toyota jobs at the plant, and another 3,150 jobs from on-site suppliers.

That doesn’t include the nebulous “multiplier effect” that Nevada Governor Sandoval used to project that the Tesla plant will produce 22,000 jobs.

Realistically, San Antonio probably got more than half the jobs Tesla will produce in Nevada for less than a ninth of the subsidy.

In an ideal world states and cities would compete for jobs in ways that made economic sense, not by outbidding each other with taxpayer money.

But if a few states do it, others believe they have to.

And Nevadans will think they got a good deal even if Tesla meets only half their projections.

The reason is that even a few thousand jobs will be noticeable, and the $1.25 billion tax bill will silently go unpaid.

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