Elon Musk: We didn’t trick Nevada into taking our Gigafactory

Tesla CEO Elon Musk has responded to critics of his plans to build a battery “gigafactory” in Nevada.

And he’s not pulling any punches.

[aditude-amp id="flyingcarpet" targeting='{"env":"staging","page_type":"article","post_id":1612396,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

Musk defended his company’s plans in a blog post entitled “The House Always Wins,” a reference to casino gambling.

“There have been several articles recently implying that Tesla, through clever machinations, maneuvered Nevada into providing an overly large incentive package for the Gigafactory,” said Musk. “I love backhanded compliments as much as the next person, but this is untrue.”

Musk was presumably referring to an investigative report in Fortune that detailed how several states competed to build the factory by offering various incentives.

Musk noted that the state incentives for Tesla’s factory were approved unanimously by Nevada’s legislature.

“The deal is not merely slightly good for the people of Nevada, it is extremely good,” said Musk.

The Tesla CEO denied receiving any cash from the state, but did acknowledge that his company had recieved a parcel of land from the deal.

“If you have been to Nevada, you will notice that there is quite a lot of extra land with nobody on it,” he said. “This is not in short supply.”

Musk said Nevada’s contributions would only cover a small portion of the Gigafactory’s cost.

[aditude-amp id="medium1" targeting='{"env":"staging","page_type":"article","post_id":1612396,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

“Of the $5 billion investment needed to bring the Gigafactory to full production in five years, state incentives will cover about 5%,” he said.

That would value Nevada’s contribution at about $250 million. The Fortune article said the “tally” for Nevada was $1.4 billion.

Musk also revealed that Nevada didn’t write Tesla a blank check, so to speak.

“All of the incentives approved by the legislature are performance based,” he said. “We must execute according to plan to receive them, meaning that, while the state and Tesla both share the upside, only Tesla suffers the downside.”

[aditude-amp id="medium2" targeting='{"env":"staging","page_type":"article","post_id":1612396,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

Tesla has huge plans for this enormous facility in Nevada, and the company is making some major “forward-looking” claims about what it will be able to do.

Tesla put together a pdf with its future plans for the facility, claiming some major figures by 2020, including a vehicle volume of around half a million per year.

The company also provided this telling chart of where it thinks it will be in relationship to the competition. It says that “The Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium ion batteries annually than were produced worldwide in 2013.”

[aditude-amp id="medium3" targeting='{"env":"staging","page_type":"article","post_id":1612396,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

Here’s Musk’s entire blog post responding to his critics:

There have been several articles recently implying that Tesla, through clever machinations, maneuvered Nevada into providing an overly large incentive package for the Gigafactory. I love backhanded compliments as much as the next person, but this is untrue.

Nevada is the entertainment capital of the world, home to the most sophisticated casinos on Earth. As everyone knows, the money to build those resorts arises because the casino houses generally tend notto lose. Even were they to lose, the state of Nevada, through the taxes it collects, would still win – it is the house to the house. They really know what they are doing.

Moreover, when the incentive proposal went to the Nevada legislature, it received approval from every member of the Senate and House with no dissenting votes. This includes every Republican and Democrat representative from every part of the state. Following passage of the bill, the debt ratings agency Moody’s assessed the deal as credit positive for both the Reno area and Nevada as a whole.

The reason is that it is a no-lose proposition for the state. The deal is not merely slightly good for the people of Nevada, it is extremely good.

To understand why, one must look closely at the terms of the deal. A casual reader of stories about the Gigafactory might assume that the $1.3 billion number in the headlines means that the state wrote Tesla a huge check for that amount. In fact, Tesla has received no money from the state at all. We did receive land through a swap the state did with our developer, but, if you have been to Nevada, you will notice that there is quite a lot of extra land with nobody on it. This is not in short supply.

Of the $5 billion investment needed to bring the Gigafactory to full production in five years, state incentives will cover about 5%. Compared to the operational and upgrade costs over a 20 year period, expected to be approximately $100 billion, state incentives will constitute just over 1%. This makes sense: the $1.3 billion in incentives mostly consists of alleviating a few percent of annual property and use tax on a huge amount of equipment over the course of 20 years, an average of about $50 million per year after initial construction.

However, the 20 year mark is simply when the last of the incentives expires. The Gigafactory itself will continue contributing economically to Nevada for much longer. Our automotive plant in California has been in operation for over 60 years with no foreseeable end in sight.

It stands to reason that the beneficiaries of a project should also contribute to its creation. Given that Nevada will have the largest and most advanced battery factory in the world and a very large number of high-paying direct and indirect jobs, contributing about 5% to the initial construction cost and a few percent to costs thereafter seems pretty fair.

Finally, with the exception of the land conveyance, all of the incentives approved by the legislature are performance based. We must execute according to plan to receive them, meaning that, while the state and Tesla both share the upside, only Tesla suffers the downside.

At Tesla, we believe in doing deals where both parties benefit, and, when there is an asymmetry or underperformance on our part, interpreting that in the other party’s favor. This is true for big deals like the Gigafactory and for everyday transactions. For example, if you buy or lease our car and don’t like it (within a reasonable amount of time), you can automatically give it back, accounting only for usage and damage. Tesla will absorb loss of the new car premium when reselling it as a used vehicle.

Our goal in doing so is to build long-term trust. If people know that we will not take advantage of them and aspire to fairness, even at our own expense, then they are much more likely to want to work with us in the future.

The article below about our vehicle factory in California gives a sense of what we expect of the Gigafactory in Nevada.

– Elon

 

This story originally appeared on Business Insider. Copyright 2014

[aditude-amp id="medium4" targeting='{"env":"staging","page_type":"article","post_id":1612396,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']