Grid Scale, Solar, Storage

Nevada Hits the Jackpot in Bid for Tesla Motors Gigafactory

Governor Brian Sandoval took to the podium yesterday in Carson City alongside solar magnate Elon Musk to announce Nevada has been chosen as the official home of the long-awaited Tesla Motors “Gigafactory,” a $5 billion lithium-ion battery production facility expected to churn out half a million electric car battery cells and packs by 2020.

Arizona, California, New Mexico and Texas had all vied for the project, which is expected to generate a total of some 6,500 on-site jobs paying an average wage in excess of $25 per hour by the time it goes online in 2017. Construction of the 10 million square foot facility will occupy a land area the size of 174 football fields and will be located in an industrial park near the Reno suburb of Sparks. Final approval of the deal is subject to legislative review and approval.

Sandoval called it “a monumental announcement that will change Nevada forever” and said the factory will result in “more than $80 of economic impact for every dollar that Nevada invests.” This could mean a financial boost for the state worth $100 billion over the next 20 years. The governor said construction of the Gigafactory will create 3,000 immediate jobs and indicated the possibility of another 16,000 indirect jobs within the community. Sandoval also announced the Nevada educational system will receive “a direct $35 million contribution from Tesla.”

As a part of the deal, the state of Nevada will agree to a tax incentive package worth $1.25 billion over the next 20 years — more than twice the $500 million amount it was originally believed the state would have to pay to secure the deal. This includes $725 million in sales tax abatements over the course of 20 years, $332 million in property tax abatements over 10 years, $195 million in transferable tax credits, $27 million in payroll tax abatements over 10 years, and $8 million in electricity rate discounts over eight years.

Additionally, the Nevada legislature will consider passing a law giving Tesla Motors permission to sell its electric vehicles to customers directly through manufacturer stores, bypassing the requirement to do business through an auto dealer franchise agreement. Several states have effectively banned the sale of Tesla vehicles by forbidding this practice.

The Gigafactory will play a crucial role in the aim of Tesla Motors to mass produce lower cost electric vehicle batteries for use specifically in its Model 3 vehicle, which the company hopes to mass produce and sell at a sticker price of around $35,000 by 2017. By 2020, annual production output should reach 35 GWh of cells and 50 GWh of packs.

Musk, Chairman and CEO for Tesla Motors, said the Gigafactory is “an important step in advancing the cause of sustainable transportation and will enable the mass production of compelling electric vehicles for decades to come.”

Not one short on audacity, Musk’s Gigafactory gamble has provoked controversy over concerns that the factory’s immensely ambitious output may result in a situation of overcapacity, similar to what was seen in the solar industry. According to recent analysis by Lux Research, Tesla Motors could see overcapacity as high as 57 percent if it fails to hit its established target of selling 500,000 vehicles per year by 2020.

One of the main contributing factors of that assessment, according to Lux research analyst Cosmin Laslau, is that the Gigafactory “will only reduce the Tesla Model 3’s cost by $2,800.” Lalsau says these nominal savings may not be enough to influence high volume sales and will likely result in sales of only 240,000 units in 2020.

The report goes on to say that Panasonic, Tesla Motors’ manufacturing partner, may yield only “razor-thin margins” if targets are not met, and in a worst-case scenario could see only $7 billion in profit between 2017 and 2020 instead of the significantly higher $15 billion the Japanese electronics corporation stands to make.

Although the Lux report states it is “unlikely” overcapacity could be offset by demand from other electric car manufacturers or alternative means, Musk has stated publicly his intent to earmark a chunk of the factory’s production for “large scale use of stationary storage” such as residential and commercial backup power and peak demand reduction systems. To date, that amount remains unspecified.

Meanwhile, Musk’s other considerable iron in the fire, SolarCity, yesterday announced a bold expansion that will see the opening of 20 new operations centers across seven states: Arizona, California, Delaware, Maryland, Massachusetts, Nevada and New York. The move follows hot on the heels of six months of sustained growth by SolarCity, a time in which the company opened its first operations centers in Nevada and Delaware, also adding new operations in four other states.

Already the nation’s largest solar industry employer with more than 7,000 full-time U.S.-based workers, it is expected that SolarCity’s multi-state expansion plans will result in the creation of more than 600 new jobs “in a range of disciplines.”

Lead image: Jackpot via Shutterstock