Tesla CEO Elon Musk Responds To Allegations That Claim Tesla Duped Nevada In Gigafactory Deal

NOV 26 2014 BY ERIC LOVEDAY 9

Elon Musk Takes To The Podium In Nevada

Elon Musk Takes To The Podium In Nevada

This highly detailed Tesla gigafactory article started making the rounds and it didn’t please Tesla CEO Elon Musk.

In fact, Musk was so annoyed by some of the claims in the article that he responded via a Tesla blog post.

Basically, Musk is stating that Tesla did not manipulate Nevada in relations to the gigafactory deal.

Here’s what Elon Musk wrote:

The House Always Wins
By Elon Musk, CEO

There have been several articles recently implying that Tesla, through clever machinations, maneuvered Nevada into providing an overly large incentive package for the Gigafactory. I love backhanded compliments as much as the next person, but this is untrue.

Nevada is the entertainment capital of the world, home to the most sophisticated casinos on Earth. As everyone knows, the money to build those resorts arises because the casino houses generally tend not to lose. Even were they to lose, the state of Nevada, through the taxes it collects, would still win – it is the house to the house. They really know what they are doing.

Moreover, when the incentive proposal went to the Nevada legislature, it received approval from every member of the Senate and House with no dissenting votes. This includes every Republican and Democrat representative from every part of the state. Following passage of the bill, the debt ratings agency Moody’s assessed the deal as credit positive for both the Reno area and Nevada as a whole.

The reason is that it is a no-lose proposition for the state. The deal is not merely slightly good for the people of Nevada, it is extremely good.

To understand why, one must look closely at the terms of the deal. A casual reader of stories about the Gigafactory might assume that the $1.3 billion number in the headlines means that the state wrote Tesla a huge check for that amount. In fact, Tesla has received no money from the state at all. We did receive land through a swap the state did with our developer, but, if you have been to Nevada, you will notice that there is quite a lot of extra land with nobody on it. This is not in short supply.

Of the $5 billion investment needed to bring the Gigafactory to full production in five years, state incentives will cover about 5%. Compared to the operational and upgrade costs over a 20 year period, expected to be approximately $100 billion, state incentives will constitute just over 1%. This makes sense: the $1.3 billion in incentives mostly consists of alleviating a few percent of annual property and use tax on a huge amount of equipment over the course of 20 years, an average of about $50 million per year after initial construction.

However, the 20 year mark is simply when the last of the incentives expires. The Gigafactory itself will continue contributing economically to Nevada for much longer. Our automotive plant in California has been in operation for over 60 years with no foreseeable end in sight.

It stands to reason that the beneficiaries of a project should also contribute to its creation. Given that Nevada will have the largest and most advanced battery factory in the world and a very large number of high-paying direct and indirect jobs, contributing about 5% to the initial construction cost and a few percent to costs thereafter seems pretty fair.

Finally, with the exception of the land conveyance, all of the incentives approved by the legislature are performance based. We must execute according to plan to receive them, meaning that, while the state and Tesla both share the upside, only Tesla suffers the downside.

At Tesla, we believe in doing deals where both parties benefit, and, when there is an asymmetry or underperformance on our part, interpreting that in the other party’s favor. This is true for big deals like the Gigafactory and for everyday transactions. For example, if you buy or lease our car and don’t like it (within a reasonable amount of time), you can automatically give it back, accounting only for usage and damage. Tesla will absorb loss of the new car premium when reselling it as a used vehicle.

Our goal in doing so is to build long-term trust. If people know that we will not take advantage of them and aspire to fairness, even at our own expense, then they are much more likely to want to work with us in the future.

The article below about our vehicle factory in California gives a sense of what we expect of the Gigafactory in Nevada.

– Elon

Link to article Musk references.

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9 Comments on "Tesla CEO Elon Musk Responds To Allegations That Claim Tesla Duped Nevada In Gigafactory Deal"

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Mark C

Obviously, the Fortune article writer was not a fan of Tesla to begin with and likely recommended that Fortune readers not “waste” their money buying into Tesla. With all the egg on his face after Tesla exploded in popularity to those who weren’t already eagerly following the Tesla saga from the beginning, he is seriously upset that he didn’t buy stock during the IPO.

Assaf
In the big scheme, and sticking to the casino analogy, corporations always get a far better hand dealt to them vs. the little gal and guy. We usually don’t get 5% participation in our small-business capital investments (above and beyond the ordinary Federal and local incentives that already exist, and that surely Tesla’s army of accountants and tax lawyers know how to squeeze more than Little Gal/Guy). So in that sense the Fortune article has a point. But coming from Fortune this is rich (heh, heh), given that they adore and worship this general corporate-welfare culture. ***Relatively*** to other corporate sweet-deals, Musk seems 100% correct to point out it’s a rather straight and fair deal for Nevada, compared e.g. to the $9B the corrupt idiots here at Washington State signed off to Boeing in exchange for continuing to only partially screw state residents over. That, at a time when Washington is officially in contempt of its own Supreme Court, for failing to fund the education system. Or… another painful example: Intel got from the Israeli government, a crisp 38% participation in capital expenditures on its ‘Fab 18’ factory in which I worked in 1997-2000. Concurrently, similar support to other smaller… Read more »
Spec9

I’m so annoyed about all the hypocrites that never denounced this type practice when done by gasoline automakers, appliance factories, aircraft manufacturers, Sports teams, etc. . . . ONLY when it came to a green car maker taking advantage of this process which has been going on for DECADES did it suddenly become some kind of bad thing.

ffbj

The House always wins? Incorrect. If it did no one would gamble or bet against them.
This is just an example of how we tend to trivialize complex, difficult problems, by merely tossing in a catch phrase.

The statement should be the house usually wins. Now if you are talking about certain forms of sports betting wherein juice is involved then the house can win regardless of the outcome, win lose or draw. Plus it is not a zero sum game so both Tesla and NV can be winners in this deal, as stated above.

Jouni Valkonen

of course you are splitting hairs here, but what Elon meant here was that the house always wins on a long run. You need to understand the context. Without context semantics has very little meaning.

Anthony Fiti

As a Nevada resident, I’m grateful the state at least covered it’s own ass when it comes to requirements on employment at the facility. No jobs – no money.

While 1.4B doesn’t sound like a lot of money, it is to a tiny state of less than 3M people (Seattle metro area has more residents than all of Nevada). Our state’s biennium budget is around 7B, so about 3.5B a year. Over the 20 years of the deal, it comes out to about a 2% per year hit (its more in years 1-10, less in 11-20).

Then there a lot of intra-Nevada issues to deal with. The north and rural part of the state have for the last 30+ years taken more than they put in to the general fund. Southern Nevada schools are overcrowded and underfunded, while the north (read: Reno) has a much higher per-pupil funding level (why? the northern Republicans have always managed to execute a “divide and conquer” strategy on the south – northern Republicans get southern Republicans to side with them, while southern Democrats are left trying to get more money for the south all by themselves).

ModernMarvelFan
Why is Elon so sensitive about it? People are going to be critical about Tesla anyway. You can’t have the good without the bad coverage. It is like a QB in the NFL. You are going to get the credit when a WR turns a 2 yard pass into 80 yard TD and you are going to get the blame too when the pass bounce off WR’s hand and turns into a 80yd Defensive TD… No big deal. It is just a good business deal. It is NOT illegal nor unusual. Tesla got an awesome deal and both party benefitted… Even if Tesla got a better deal than other states have offered, it is NOT like that any other automakers are even looking at Nevada as a potential sites. So, it is all gain for Nevada either way, even if the price is steeper than one would like. Think of it this way, from a Nevada point of view, even if it is a small gain for Nevada and a big gain for Tesla, it is still BETTER than NO gain at all if Tesla is NOT there. That is why it passed easily and supported by governor and legislature.… Read more »
Anon

Elon is the rabid Watchdog and guardian of Tesla. And I mean this, in the most positive way possible. To him, perception (and to a slightly lesser extent, accuracy) is everything, and how people perceive the mission and business practices of Tesla Motor Company, are critically important to him and the businesses survival.

Beyond that immediate concern, leaving negative inaccuracies to fly and fester in the public mind, jeopardize the forward progress of influencing and converting the global automotive industry over to pure electric drivetrains.

There is a lot resting on Mr. Musk’s shoulders, and he knows it.

So leaving anti-Tesla FUD articles like this to propagate, simply won’t do.

electriccarguestdrive.com

Nevada could do a lot worse than incentivizing high tech companies to move major manufacturing facilities into the state.

Given the two “attractions” the state is best know for, it seems a safe bet.