Is Elon Musk’s Tesla Gigafactory worth California taxpayer money?

Would you pay $500 million for this? Debate over government incentives for Tesla Motors Inc. CEO Elon Musk’s proposed $5 billion battery “Gigafactory” has intensified in California this week.

By Lauren Hepler –

Business and consumer advocacy groups this week squared off in opposing letters to California lawmakers currently evaluating the financial incentives that they may be willing to dole out for Tesla Motors Inc.’s much-hyped $5 billion “Gigafactory” battery plant.
The California Budget Group and allied organizations on Monday released their open letter to lawmakers in all five of the states vying for the factory — New Mexico, Texas, California, Nevada and Arizona. A media spectacle has emerged over Tesla CEO Elon Musk’s elaborate plans for the clean energy battery manufacturing facility and states’ race to accommodate it.
The Gigafactory is projected to create about 6,500 jobs. The proposal also comes as states and localities rush to secure high-tech manufacturing projects in the U.S. after years of domestic companies systematically outsourcing to cheaper overseas locales.
And it’s not as if these states haven’t competed for business before. Southwestern politicians, particularly from Arizona, Nevada and Texas, have been trying to poach California businesses for years, often with promises of reduced red tape, low taxes and up-front financial incentives. California has ramped up its own business development efforts during the economic recovery, in 2011 starting the Governor’s Office of Business and Economic Development, or GO-Biz.
The consumer groups now weighing in on the Gigafactory incentives oppose spending so much taxpayer money on the business project.
“All of our states could potentially spend $500 million on other vital public services,” the California Budget Group wrote, referencing New Mexico’s initial half-billion-dollar offer. “Any agreement struck must be fully transparent — no law requires you to negotiate with Tesla or any company behind closed doors — and, furthermore, should include robust provisions for disclosing actual costs and benefits over time.”
However, the Bay Area Council, a Silicon Valley business association, issued its own letter on Wednesday applauding California Governor Jerry Brown’s initial offer to match the $500 million incentive and ease notoriously lengthy state environmental approvals. The group frames a potential incentive package for the Gigafactory as a progressive investment in renewable energy technology.
“This is just the kind of role that government can and should play in advocating for the state and facilitating new and emerging industries,” the letter notes. “That Tesla and its products align with the state’s objectives on climate and energy makes this a strategic priority for California.”
While the intrastate haggling over the giant battery technology facility will likely continue to play out during the coming months, the debate over whether or not California should be jumping in to pay for the project encompasses several bigger financial concerns.
California’s budget turmoil has been well documented in recent years. Huge state budget cuts to local programs have severely restricted funding available for badly-needed Bay Area affordable housing, transit and emergency services. That tense climate has exacerbated nagging philosophical questions about how taxpayer money impacts the private sector.
Tesla CEO Musk is a particularly compelling example in this realm because he has started multiple companies in major industries with high overhead costs and potential public value. In addition to Tesla’s pioneering work in the field of clean energy cars, he is the founder of solar energy company SolarCity Corp. and rocket company Space Exploration Technologies Corp. — all of which have challenged existing regulatory frameworks and claimed multimillion-dollar government incentives (read more about Tesla here, SpaceX here and SolarCity here).
A Bloomberg article published earlier this year targeted Musk’s “sheer level of hypocrisy” when it comes to businesses being propped up by taxpayer money, citing the following example:
“His car company, Tesla, received $452 million in government loans,” Bloomberg points out. “After the company paid them back, Musk suddenly decided that federal investments and/or loans to promote alternative energy was a bad idea … the equivalent of Citigroup Inc. and Bank of America Corp. opposing bank bailouts.”
But it’s obviously not just Musk among technology entrepreneurs — and more established companies with a large presence in Silicon Valley — that have profited from government funds.
Half a century ago, there was the government-subsidized aerospace cluster that sprouted up in Silicon Valley with federal contractors like Lockheed Martin and Northrop Grumman. More recently, cleantech and biotech firms in the Bay Area have attracted government subsidies, with the most spectacular backfire on that front coming with famously bankrupted solar provider Solyndra.
“Musk is also emblematic of a curious strain of denial that seems to infect Silicon Valley as a whole,” noted Mother Jones reporter Josh Harkinson in a 2013 story on Musk’s love-hate relationship with government incentives. “His breakaway success is a powerful reminder of how the public sector can turbocharge innovation.”


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