Tesla has decided to build its massive battery factory in Nevada, dashing desert leaders’ hopes the electric automaker would locate its so-called Gigafactory by the Salton Sea.
Tesla confirmed Wednesday that they will make a “major economic development announcement” at 4 p.m. Thursday in Carson City, Nevada’s capital, alongside Gov. Brian Sandoval and legislative leaders. California Gov. Jerry Brown’s office was notified of the impending announcement Wednesday.
Imperial Valley Supervisor Ryan Kelley, District 4, said, “It’s unfortunate and it’s real sad that the State of California can’t keep a California business in California, especially, one that is an emerging technology. We can see the movement going in that direction. We’re going to continue to try to bring in these companies.”
California was a late entrant into the Gigafactory competition, joining Arizona, Nevada, New Mexico, and Texas. Tesla originally ruled out California due to the state’s high tax burden and cost of living, but the prospect of abundant lithium from the Salton Sea helped jettison the state back into the running.
In the end, though, state officials were unable to strike a deal with the California-based automaker, which is headquartered in Palo Alto. While they reportedly offered Tesla much of what the company wanted — including investment tax credits in the $500 million range and expedited permitting and environmental review processes — the Legislature adjourned this weekend without an agreement in place.
“I feel like we put a competitive offer together,” said state Sen. Ted Gaines, R-Roseville, who led the legislative charge to lure Tesla. “I’m just devastated that Tesla would not value the relationship enough, with what California has already done for them, to make this decision to locate out of California.”
The Gigafactory is expected to employ about 6,500 people and could cost as much as $5 billion to build. Tesla started preliminary work on a potential site outside of Reno earlier this year, but Tesla CEO Elon Musk said at the time the company planned to break ground on several sites before making a final decision by year’s end.
Gaines said he believes California’s business climate drove the automaker to choose Nevada. Analysts say California has been losing jobs to states with lower tax rates and looser regulations, headlined by Toyota’s April announcement that it would move its American headquarters from suburban Los Angeles to Texas.
“We’ve got to do everything we can to maintain a middle class in California,” Gaines said. “If we over-regulate and over-tax our businesses, and if they become the enemy, then the state will be destined to mediocrity.”
Tesla’s headquarters and primary manufacturing plant are both in the San Francisco Bay Area, and SpaceX, another company founded by Musk, is based in Hawthorne. Musk is also the chairman of SolarCity, which is headquartered in the Bay Area.
“Tesla and Tesla’s investments have always gone to California,” said Joe Wallace, managing director of the Coachella Valley Economic Partnership’s (CVEP) business incubator. “They don’t have an aversion to California.”
Supervisor Ryan Kelley said, “We understand they are going to have multiple sites. We believe we are still in consideration. Their need is going to be greater than one site. So we think that we still have that opportunity.”
Wallace blamed California’s inability to land Tesla’s battery factory on “sclerosis of the elected leaders in Sacramento.” Like Gaines, he argued that an inhibitive business environment has hurt the state’s ability to compete for jobs, including those that the Gigafactory would have generated.
“If you fight and lose, you live to fight another day. That’s fine,” Wallace said. “But we didn’t fight.”
The state’s arduous permitting and environmental review processes might have been especially concerning to Tesla, which is in a hurry to start selling a more affordable car. The company plans to launch its Model 3, which would cost $35,000-$40,000, in 2017. But that won’t be possible if the battery factory — which will lower Tesla’s costs substantially — isn’t up and running before then.
“If it takes four years to get a permit to do something here, and one year somewhere else, then we’ve got a three-year problem, because corporate America doesn’t wait three years to do anything,” Wallace said.
California also has relatively high income tax rates — especially compared to Nevada, which doesn’t have individual or corporate income taxes. California’s minimum wage, meanwhile, is $9, compared to $8.25 in Nevada — or $7.25 when an employer provides health insurance.
It would have been difficult for California to overcome those fundamental policy differences, and there were indications earlier this week that Tesla might only be negotiating with California in an effort to extract concessions from other states. Gaines questioned whether the automaker ever intended to strike a deal with California before the legislative session ended.
Brook Taylor, a spokesperson for the Governor’s Office of Business and Economic Development, declined to comment on what prevented California and Tesla from reaching a deal.
“No other state has added more jobs than California since the recovery began and we’ll continue to work closely with businesses, including California-based Tesla, that want to grow here,” Taylor said in an email.
Despite Tesla’s decision to build its first battery factory in Nevada, there might be hope for a future facility in the desert. Musk has said that the company could eventually build multiple Gigafactories, as demand for electric cars and energy storage grows.
“Hopefully if these future factories happen, our legislators will learn their lesson, and pass a bill that will put us in a position to compete in such things,” Wallace said.
Gaines plans to turn his attention to improving the state’s business climate. Losing the Gigafactory, he said, “will give us an opportunity to reflect on what we can do differently.”
“I have for many, many years been in support of regulatory and tax reform in California that helps businesses grow,” he said. “So I’m going to redouble my efforts, and talk about what happened with Tesla to my colleagues.”
For Tesla, Thursday’s planned announcement will mark a milestone in its efforts to produce an affordable electric car with mass-market appeal. Karl Brauer — a senior analyst at Kelley Blue Book, an automobile valuation firm — said in an email that the Gigafactory will give Tesla “a real shot at producing a $30,000 electric car with a 200-plus-mile range.”
Nevada “has a lot to offer” as the Gigafactory’s location, Brauer added. Sandoval, Nevada’s governor, is expected to call a special session of the state’s Legislature to pass the deal reached with Tesla.
Kelley added, “Even without Tesla, Simbol will produce a material that other companies will be interested, like foreign and domestic autoworkers and battery production that want to be next to the source.”