Published on September 3rd, 2014 | by Sandy Dechert23
Is Tesla Overreaching With Gigafactory Tactics?
September 3rd, 2014 by Sandy Dechert
Tesla Motors announced big plans earlier this year. Though the agreement is not public, Panasonic is also involved: it plans to manufacture and supply cylindrical lithium-ion cells Tesla uses to build battery packs to power electric cars. Specifically, said Sebastian Blanco of Autoblog Green in June, batteries from Tesla’s announced Gigafactory will power the concept vehicle Tesla Model 3, a mainstream EV ($35,000 base price) that will go over 200 miles on a charge.
Tesla CEO and SpaceX innovator Elon Musk has acknowledged that Model 3 batteries need to be much cheaper than those used for the Model S in order to achieve the lower price. How much? Musk says the new battery packs should reduce the per-kWh cost by more than 30%. He has set up a plan to construct a large-scale manufacturing plant to produce 35 GWh of cells and 50 GWh of packs per year by 2020.
Like its unconventional and brilliantly cheap “interactive” marketing and advertising, Tesla’s new plan for funding Gen 3 batteries takes a tack that’s far from orthodox. Blanco points out in yesterday’s article that the brilliant 21st-century-flamboyant Musk’s novel tactics have set off a bidding war among officials in the five states. The Gigafactory process is to start out with $500 million in subsidies from the winning state. Public interest groups from each state have jumped on the implications of this with a widely circulated open letter to state officials.
Overspending on Tesla–or any other company–could be a net-loss game in which fewer public resources are then available for investments in areas that benefit all employers, such as education and training, efficient infrastructure, and public safety. All state and local taxes combined equal less than 2% of a typical company’s cost structure, but lost tax revenue comes 100% out of public budgets.
The consumer-directed organizations believe the half-billion-dollar tax breaks could be better used. They consider Tesla’s corporate-induced battle among entities representing the American public as “a race to the bottom from which no real winner may emerge.” In other words, the independent watchdogs think Tesla is pitting state governments against each other to get the best deal for the corporate-owned Gigafactory.
Their letter chides Tesla for proposing a scenario in which the corporate sector will benefit more than any of the other players. Although as Tesla says the Gigafactory is “undoubtedly a valuable source of economic growth for its eventual home state,” the ultimate loser would be the states and the nation as a whole, because all taxpayers will end up subsidizing the costly race and a needlessly expensive venture.
This is not the way company-government bargaining is supposed to work. Since when do private entities, however forward-thinking and benign their motives, hit up the public to reap top dollar? The reverse is the usual case. The advocate correspondents note that $500 million could go a long way toward solving more pressing problems. And as for much-vaunted “transparency,” although Tesla’s voluntary disclosures certainly exceed those of wheeling-dealing in the back rooms of Congress (or in corporate boardrooms), Your Houston News reportedly notes that Tesla is asking the states “not to discuss their offers, and states aren’t talking.”
The public advocates in five states wonder out loud if Tesla would be “receptive to a multi-state dialogue” and not reinforce the “harmful pattern of one state ‘winning’ a high-profile competition.” That may still defeat the argument that the issue is federal, but at least it wouldn’t needlessly shift a huge amount of money into corporate profits and cause potential public risk.
Elon Musk may even be responsive to this unusual opportunity to help innovate the traditional path of economic development, Mr. Blanco argues. He point out the success of the traditional automotive industry—“with its far-flung supply chains and 50-state market”—in treating states as interdependent and pursuing the main goal of the long-term growth of American jobs. Certainly, in an international parallel, it would waste resources for every nation to have its own plan to check the Islamic State or cure Ebola.
“We call upon our elected officials to seize this rare opportunity,” say the consumer advocates. “Talk to each other, let the public into the process, and when the time comes, strike a smarter deal that will preserve the tax base for the benefit of all.”
Signers of the letter, representing all five states, are: Diane E. Brown, Arizona PIRG; Chris Hoene, California Budget Project; Bob Fulkerson, Progressive Leadership Alliance of Nevada; Javier Benavidez, Southwest Organizing Project (New Mexico); Craig McDonald, Texans for Public Justice; Greg LeRoy, Good Jobs First.
Tesla expects to issue an official announcement on the location of its first Gigafactory toward the end of this year. For now, you can read CBP’s open letter in full here.
As usual, controversy rages. If you want to act on the situation from any perspective, we suggest you do so right away by letting Mr. Musk and the appropriate state governors, legislators, and regulators know what you think.
Editor’s Update: It looks like the deal may already be made anyway, with a leak that Nevada has secured the Gigafactory. Perhaps the early announcement was spurred on by this controversy.
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