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Tesla's Bait and Switch to Nevada for Gigafactory

Tesla's Bait and Switch to Nevada for Gigafactory

After all the hokey-pokey about how committed Tesla is to California, the company chose Sparks, Nevada to manufacture batteries at its new 26 acre “Gigafactory” where it is already laying a foundation, according to a CNBC report citing the Nevada Governor’s office.  

It was also reported that California Governor Brown offered $500 million in corporate welfare to entice the battery factory to locate in California. But in locating in Nevada, Tesla will continue to get rich California subsidies, but avoid paying tax to support those subsidies.

While continuing to collect massive corporate welfare from the Golden State, Tesla and its CEO Elon Musk can look forward to a business environment in Nevada with zero corporate income tax, zero individual income tax, plus lower sales and property tax. 

Nevada is ranked third best in the Tax Foundation’s State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes, and taxes on property, including residential and commercial property.  

The rankings for neighboring states are: California is 48th, Oregon is 12th, Idaho is 18th, Utah is 9th and Arizona is 22nd, according to the 50-State 2014 Comparison of Business Tax Climates report. 

In comparison to Nevadans, Californians “enjoy” a 33% higher sales tax and 28% higher property.  California’s 2011 tax burden of 11.35% ranked 4th highest out of 50 states, and is above the national average of 9.8%; versus Nevada’s 2011 tax burden of 8.06% ranked 8th lowest out of 50 states.  Californians pay an average of $5,136 per capita in state and local taxes–59% more than Nevadans, who pay only $3,221. 

When it comes to labor laws, the Gigafactory probably will not be unionized, since Nevada is the most western state with right-to-work labor laws that make paying union dues optional to the worker.     

In comparing where to locate a business, Thumback.com consumer service website partnered with the Ewing Marion Kauffman Foundation in January to ask 12,000 small business owners from 38 states how they perceive the business environment in the states and metro areas where they operate.  

Utah rated the highest with a grade of “A+.”  Nevada was 14th with a grade of “B+.”  California was edged out by Rhode Island and Illinois for the most Small Business Unfriendly State, but still qualified to receive an “F” grade.    

The Gigafactory began clearing the site in July and laying the foundation in Sparks, Nevada, just outside Reno, despite continuing to say they were in negotiations with California, Nevada, Arizona, New Mexico and Texas to build the plant, which is estimated to cost $5 billion and employ 6,500 workers. 

Analysts at Lux Research expect the “Gigafactory” to reduce the cost of the Tesla’s Model 3 vehicle by $2,800. But I do not believe that the goal of the Gigafactory is to only support electric vehicle manufacturing.

Elon Musk is also the CEO and major shareholder of SolarCity, which installs solar panels for commercial and residential properties.  Due to the huge amounts of subsidies and mandates, federal projections show that solar, wind, geothermal and biomass power installations are about to overtake hydropower as the America’s key renewable energy supplier.

But the nasty little secret about renewables is that the sun doesn’t shine enough to make any power 70% of the time, and the winds tend to blow in the spring and fall, which are periods of low energy demand.  Furthermore, sometimes the wind blows and sometimes the sun shines. 

This intermittence requires utilities to pay very high fees under the Public Utility Regulatory Policy Act to provide “Qualifying Facilities”–stand-by carbon based power plants that are available to be quickly cranked up to maintain the power to their electric grids on a 24/7 basis. 

The California Public Utilities Commission regulation allows full pass-through percentage mark-up on all purchased utility costs in the state. Consequently, it is more advantageous for utilities to pay higher costs to buy power. That explains why utilities are so enthusiastic to pay the high subsidized cost of “sustainably” generated power.

Since battery power has been politically deemed to be “sustainable power”, SolarCity and Tesla intend to manufacture huge “battery farms” in states like California that can be recharged at low electrical rates and then receive fees from utilities as stand-by power sources, regardless if the battery power is ever used. 

Tesla, SolarCity and SpaceX are headquartered in California. As CEO, Elon Musk successfully led lobbying for each of these companies to receive huge amounts of government subsidies from the state.  Having proved that he is the best CEO at getting subsidies from California taxpayers, Elon Musk seems to have chosen to switch where he is building his new factory to Nevada in order to avoid being a taxpayer.

Chriss Street suggests that if you are interested learning more about subsidies please click on SpaceX Sued Under Warn Act for Up to 400 Layoffs

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