Tesla Breaks Ground as Nevada Takes Lead for New Factory

Aug. 1 (Bloomberg) -- Tesla posted second-quarter sales of Model S electric sedans that matched analysts’ estimates as the company began deliveries to China. Julie Hyman and Alix Steel report on “In The Loop.” (Source: Bloomberg)

Tesla Motors Inc. said it’s broken ground near Reno for a $5 billion battery plant, signaling Nevada has vaulted to the lead of five states vying for the so-called gigafactory and its promise of 6,500 jobs.

The electric-car maker said it’s still reviewing sites in California, Texas, Arizona and New Mexico, each of which is competing to snare the economic development plum, described as the single biggest new industrial project in the U.S.

“On the Nevada side, the ball is in the court of the governor and the state legislature,” Chief Executive Officer Elon Musk said yesterday in a conference call.

For Nevada, with a 7.7 percent unemployment rate that’s the third-highest in the U.S., Tesla represents an opportunity to show that its economy can diversify beyond gambling and housing. The stakes are high for the other states as well. Putting the plant in California would help shake a reputation for high costs and tough regulations that stifle business. For Texas, where Governor Rick Perry is eyeing a comeback presidential bid, the plant could boost prospects on the national stage.

Tesla, based in Palo Alto, California, said it needs the sprawling factory in operation by 2017 to supply lower-cost lithium-ion cells for its cars and packs for home-power storage devices.

Source: Tesla Motors via Bloomberg

Tesla's rendering of their Gigafactory, designed to produce batteries, with electricity supplied by new local solar and wind. Close

Tesla's rendering of their Gigafactory, designed to produce batteries, with electricity... Read More

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Source: Tesla Motors via Bloomberg

Tesla's rendering of their Gigafactory, designed to produce batteries, with electricity supplied by new local solar and wind.

“We’ve essentially completed the creating of the construction pad for the gigafactory in Nevada,” Musk said. “We are going to be doing something similar in one or two other states.” Musk has said Tesla might start work on as many as three potential sites and decide by year-end which to build to completion, based on the speed of regulatory approval.

State Incentives

The billionaire entrepreneur said he expects the state selected for the plant to provide about 10 percent of the factory’s cost. That suggests Tesla is looking for incentives of $400 million to $500 million for the project.

“Before we actually go to the next stage of pouring a lot of concrete, we want to make sure we have things sorted out at the state level -- the incentives are there that make sense and are fair to the state and Tesla,” Musk said. “We want to make sure it’s compelling for all parties.”

Jennifer Cooper, a spokeswoman for Nevada Governor Brian Sandoval’s Office of Economic Development, said conversations with Tesla remain confidential.

The Nevada site is in the Tahoe Reno Industrial Center in McCarran, nine miles east of Reno. The center, which covers 107,000 acres, has 30,000 developable acres pre-approved for industrial and manufacturing uses, according to its website.

‘Most Attractive’

Given the scale of the investment required for the battery plant, “this would rank as the most attractive industrial project out there,” Dennis Cuneo, president of DC Strategic Advisors LLC and a former Toyota executive who helped that carmaker select manufacturing sites, said in an interview earlier this year.

Jonathan Gemmen, a senior location consultant with Austin Consulting, a site-selection firm based in Cleveland, said Tesla’s gigafactory is the most-watched project in his industry, if only for the media attention it’s drawn.

“There’s a real panache and marketing piece because the technology itself is so interesting,” Gemmen said of Tesla’s electric cars. “Louisiana has announced a bunch of chemical projects this year that the mainstream media doesn’t care about. From a marketing perspective, this is the hottest thing going on.”

California, which has lost manufacturing jobs to states with lower taxes and less regulation, was initially ruled out by Musk in February. He cited the time needed for the state’s stringent environmental review. In May, Musk said California was back on the list.

California-Born

“Tesla was born in California and currently employs over 6,000 people, making them the largest automotive company in the state,” Brook Taylor, a spokesman from the Governor’s Office of Business and Economic Development, said in a statement. “The administration is working every day to help companies expand in California and Tesla is certainly one of those companies.”

Governor Jerry Brown signed a bill in July that grants a tax incentive to companies making certain types of batteries eligible for a tax credit. State lawmakers also have promised to push for regulatory changes that would make it easier for Tesla to build the factory there.

California, home to more companies in the Standard & Poor’s 500 Index than any other state, has seen dozens of employers depart for places such as Texas. That, executives say, points to California’s highest-in-the-nation income and sales tax rates, plus a cost of living that is sixth highest in the country, according to the Missouri Department of Economic Development.

Apple, Toyota

In 2012, Apple Inc. chose Texas to build a new operations hub after the Lone Star State offered $21 million in tax incentives. Toyota Motor Corp. in April said it was moving 2,000 California jobs to a new North American headquarters outside Dallas. While the carmaker said it made the move to be closer to southern manufacturing facilities, Texas offered the company $40 million in incentives.

Perry appeared in Sacramento in June driving a Tesla, telling reporters he wished it had a “made in Texas” bumper sticker.

Texas, while farther from Tesla’s California headquarters, can pitch its lower costs of living and doing business, as well as looser regulations, said Bernard Weinstein, associate director of the Maguire Energy Institute in the Cox School of Business at Southern Methodist University in Dallas.

“We’ve had a lot of companies expand and move to Texas at the expense of California,” Weinstein said. “They’ve lost so many businesses to Texas that they will do anything needed to bring that plant to California.”

High Unemployment

Nevada’s unemployment rate peaked at 13.9 percent in August 2010 and remained higher than all but Rhode Island and Mississippi in June, according to the Bureau of Labor Statistics. The state has courted cleaner manufacturers through incentives such as sales and use tax reductions to companies that use solar, wind, biomass, fuel cell, geothermal and hydro power sources.

Economic development authorities, buoyed by Apple’s decision to build a solar-powered data center in Reno last year, are trying to lure Tesla with promises of abundant sunshine and other renewable energy sources, comparatively lax environmental rules and a workforce trained in robotics, Mike Kazmierski, president of the Reno-based Economic Development Authority of Western Nevada, said by telephone.

“The most important reason is that the cost of doing business in Nevada, and northern Nevada specifically, is about 30 percent to 40 percent less than in California,” Kazmierski said. “Manufacturing is a big part of our economy and continues to get bigger.”

To contact the reporters on this story: James Nash in Los Angeles at jnash24@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Pete Young, Alan Goldstein

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