Manufacturer of high performance electric vehicles Tesla Motors (TSLA, Financial) has got its hands on an unprecedented incentive package from the state of Nevada. Nevada, also known as the Silver State, has approved incentives worth $1.3 billion to the carmaker. Tesla, in turn, will build its battery factory in the state. The political heads of Nevada are quite optimistic about the future of this arrangement, and believe this move will lead to a win-win situation for both the state and Tesla. Here’s what is going on, why Nevada is so keen on the deal, and what it means to Tesla.
Tesla Roadster, Source: Wikimedia Commons
The deal
According to Good Jobs First, the deal signed between the carmaker and Brian Sandoval, Nevada governor, is 14 times bigger than any deal approved to date by the state. The specifics of the deal are as follows:
- Tesla Motors will be receiving $1.3 billion in tax abatement through up to 20 years of exemption from direct (sales tax), and up to 10 years of exemption from indirect taxes (payroll and property taxes)
- The package includes other incentives such as, $195 million in tax credits, which companies in Nevada will be able to buy from Tesla while dealing with the carmaker, and $8 million in electricity discounts spread over eight years
- Apart from these, the state will also work to improve infrastructure that would be essential for Tesla to function in the state
- In return, Tesla will be making an investment of $3.5 billion in the state spread over a span of 10 years, and will ensure that half of the total work force will be comprised of Nevada residents
- Tesla will also be contributing $7.5 million a year for five years in the education system in Nevada
The clauses of the agreement were well received by the Nevada government and both the Senate and the Assembly unanimously approved of the deal.
Why did the government approve the arrangement
Analysts and industry experts believe the deal meant a lot more to Nevada in comparison to Tesla. In the history of the state, this perhaps was one of the most significant developments since the Great Depression. The Silver State has a lot to gain from the deal, such as, in the next 20 years, the deal will generate more than 20,000 jobs and add more than $100 billion to the state’s economy through economic stimulus. In the words of Steve Hill, director of the Governor's Office of Economic Development,
"This really is the definition of the rising tide lifting all boats… It wasn't that long ago we were suffering through one of the worst recessions in Nevada history with 14.5 % unemployment."
The "Gigafactory" will be the biggest lithium battery factory globally, and will play a significant role in making environment-friendly electric cars popular as well as affordable. The deal is also bringing significant infrastructure improvements, and even upgradation in the state’s education system and is being perceived as something that has the power to bring about massive changes in how the state functions and fares in comparison to other states.
However, several analysts are not in support of the deal, and they feel the government has spent a huge sum of money in trying to get something that was eventually bound to happen. But it seems it was a calculated step the state took since Tesla will have to return the entire benefits in case it fails to honor its share of the deal.
What this arrangement means for Tesla
Tesla’s management is pretty excited to have its hands on the project. For quite some time now the carmaker was looking for a suitable spot for the battery factory and was in talks with several states, such as New Mexico, California, Texas and Arizona.
The car maker has pioneered the way electric vehicles perform and wants to reach even greater heights. With the vision to make EVs cheaper and make them available for a price tag less than $40,000, the company is working very hard to pull down prices for batteries. The deal with Nevada fits well into Tesla’s mission of catalyzing sustainable transportation by creating a mass market for EVs. The added advantage that the Model S maker will enjoy is proximity to lithium supply and also to Tesla’s California plant. Tesla will be able to sell its cars directly to customers rather than through a dealer.
Final words
Both Tesla’s management and Nevada’s political leaders are overjoyed with the pact between the parties. Even Wall Street seems to have liked the deal since Tesla stocks soared on the news. Compared to other states bidding for the project, surely the state of Nevada had to offer massive benefits to the carmaker to win the deal. But the governor feels it’s worth the trouble, and soon even those who are against the deal will see the brighter picture. Coming back to Tesla, it can be safely said that the revolutionary automaker has got its hands in a bucket full of silver.
