Nevada Wins Bid For Tesla’s Gigafactory

Tesla Motors has confirmed that its US$5 billion battery factory will be built in Nevada, just outside of Reno, ending months of discussion and speculation. According to Elon Musk, Tesla’s CEO, the decision was based on the ability of the state to move quickly enough to complete the factory before the three-year deadline. So urgent it is for Tesla to start churning out batteries, to supply the production of the upcoming Model 3 car, that work on several potential sites had commenced even before the decision was made.

Nevada won the battle between five states – the others being California, Nevada, Arizona, New Mexico and Texas – with a generous incentive package that include US$1.25 billion financial assistance over the next 20 years and almost complete tax exemption during the first ten. This makes it the tenth largest incentive package ever in US history.

In return, Tesla promises to bring in US$3.5 billion worth of direct investment and create 6,500 new employment opportunities, most of them high paying. According to Brian Sandoval, the Governor of Nevada, the average wage at the Gigafactory would be US$25 per hour and the economic benefits would ripple out and amount to a collective total of US$100 billion in the next 20 years. Nevada was hit hard by the recession and struggled to recover, leading to a high unemployment rate which currently stands at 7.7% compared to the nation’s average of 6.2%. "This is a significant opportunity to make a major stride to improve our statewide economy,” said Sandoval.

Others, however, think that this 1:80 cost-benefit estimate is unattainable, including Greg LeRoy of Good Jobs First, who commented, “No deal generates anything like that.”

LeRoy also said, "All too often, tax breaks aren't worth it because you're taking money away from other things that matter to all the other employers.”

But one other business that could benefit directly from the chosen location of the immense-capacity lithium-ion battery factory is the only lithium mine still in operation in the US, coincidentally located in Nevada. Most lithium is refined in China, though, but if the demand is sufficient and if Musk’s lofty dream to produce massive amounts of batteries at a low cost is to be realised, perhaps Musk will somehow contrive for a lithium refinery to be set up in the vicinity; we wouldn’t be surprised.

The hype around Tesla’s battery factory is not without its sceptics. A recent report by Lux Research, an independent research firm, estimates that the Gigafactory will only reduce the cost of the Tesla Model 3 by US$2,800, not significant enough that it would affect the success of this EV. The report predicts that Tesla will likely sell 240,000 EVs in 2020, but it would still be insufficient, even taking into account supplying to other carmakers and other non-vehicle applications, to fill the capacity of the huge factory.

Tesla’s own forecasts, however, predicts sales of just their own EV’s at half a million units in year 2020 and a 30% reduction in battery cost, which is currently about US$500 per kWh, by the time operations are ramped up in 2017. Tesla has not yet released the Model 3’s battery specifications, but assuming a humble 24kWh battery pack (which is what the Nissan Leaf is using), there would be an estimated US$8,500 reduction in battery cost, more than double Lux Research’s estimates.

We suppose customers don’t really care, though, about the costs of individual parts; what matters is the final selling price, and the Tesla Model 3 is expected to sell for US$35,000, half the price of its superstar sedan sibling, the Model S. 

image: marketwatch.com