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No gigafactory for Texas

They’re going to Nevada.

Nevada Gov. Brian Sandoval announced Thursday that Tesla Motors will build a massive battery factory in the state as long as legislators approve tax breaks and other incentives worth up to $1.3 billion over 20 years.

Sandoval revealed terms of the deal he negotiated with the electric car maker at a Capitol news conference attended by Elon Musk, CEO of California-based Tesla. The governor called it a “monumental announcement that will change Nevada forever.”

Sandoval didn’t mention the total value of the package and his remarks seemed intended to pre-empt critics who will see it as too generous.

“Is this agreement good for us?” the governor asked. “This agreement meets the test, by far.”

Later, he said that for every $1 Nevada gives up, the project will produce $80 in economic impact.

“Even the most skeptical economist would conclude that this is a strong return (on investment) for us,” Sandoval said.

Musk told the audience that Nevada didn’t offer the biggest incentive package among the five states that tried to lure the factory, though he didn’t specify which did among California, Texas, Arizona, New Mexico and Nevada.

The most important considerations were not incentives, he said, but rather a high confidence that the factory will be ready by 2017, followed by assurances that batteries can be produced cost efficiently.

Later, Musk told reporters that Tesla would stop looking for another state as a backup, in case Nevada did not come through. “Nevada is it,” he said.

Well, I’m a bit skeptical of that 80-to-1 return claim, but I’m not an economist, so there you go. Texas was in the running for this, but there was a big obstacle in the way.

Despite the state’s advantages, the company had indicated that Texas’ long-standing state laws protecting auto dealerships – a challenge to Tesla’s business model – did not help the state’s case. Texas laws prevent car manufacturers from selling directly to Texas consumers, as Tesla does. Texas requires manufacturers to sell their cars through tightly regulated franchised dealers. A few other states restrict Tesla sales through franchise laws, but Nevada is not one of them.

I’ve blogged about that before. I wonder if this will have an effect on the effort to change that law in 2015. Because of this, Texas was thought to not be a serious contender for the gigafactory. I won’t claim to be a big fan of the money that was being thrown at Tesla by the competing states, but there’s no reason to keep that archaic setup for auto sales. The Rivard Report, the LA Times, and Think Progress have more.

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2 Comments

  1. Bill Daniels says:

    States offering tax breaks, subsidies, and payola to locate new business in the state is wrong. It is not fair to all the companies doing business in the state that ARE paying full freight, that did NOT get freebies. The whole thing smacks of Rick Perry’s “Texas Enterprise Fund.” This behavior seems unethical to me, and ought to be criminal. Taxpaying businesses should be treated equally, just like citizens should be treated equally. Government shouldn’t be making special deals with some, but not others. Some would call this crony capitalism.

    Talk about government picking winners and losers. I’m disappointed in Texas and San Antonio in particular for participating in the groveling. States should compete for new businesses by offering the lowest taxes and easiest regulation for ALL businesses.

    Let Nevada have Tesla.

  2. Bill Daniels says:

    “….there’s no reason to keep that archaic setup for auto sales.”

    I agree with this 100%. Forcing Tesla, or any car manufacturer, to use another business to sell their cars is crony capitalism. The same goes with Texas’ beer, wine, and liquor distribution system.

    Let the manufacturer of the cars and the booze decide the best way to get their wares to the customer. If that means that an independent dealer network is the most efficient model, great. If the manufacturer feels like they can market their cars better internally, then they should be permitted to do that.

    Texas is open for business…..as long as the entrenched businesses already here get a cut of your action.