Back in 2007, Albuquerque celebrated a big victory: Tesla Motors had decided to build a plant there for assembling its new generation of electric automobiles.
Then in 2008, things changed: After California approved massive incentives for Tesla, the company announced in a press release it had “decided that it would be highly advantageous to build manufacturing facilities in close proximity to the engineering and research and development functions in Tesla’s San Carlos headquarters.”
Then more than a year of back-and-forth happened in Southern California, with the mayor of Downey, Calif., claiming in late 2009 that a deal was “99.9 percent done” before Tesla announced in May 2010 it had a new plan: to buy a plant in Fremont, near San Jose in northern California. That’s what the company finally did.
The switch outraged Downey officials, with council member Mario Guerra going so far as to say in a press release: “Today the residents of Downey are learning the same lesson several other cities have learned when dealing with Tesla and Mr. (CEO Elon) Musk: They cannot be trusted to honor their word. The fact is that Tesla has been extremely disingenuous in their dealing with Downey and I now have new appreciation as to why America is fed up with many large corporations.”
Today, Tesla is floating an even more tempting investment: The multibillion dollar “Gigafactory” that would produce lithium-ion batteries for its cars. Even the first jilted bride, Albuquerque, is back, bidding for the plant that Tucson is also after, along with several other cities in Texas, New Mexico, Arizona and Nevada. Albuquerque’s willingness to court Tesla again shows a few things: Incentives still make a big difference in site selection; companies can be fickle, even manipulative; and in this era of slow job growth, we’re all desperate for a big high-tech investment like the one Tesla is promising.
Tesla has said its plant will cost $4 billion to $5 billion and employ around 6,500 people by 2020. When one committee of the Arizona Senate approved a bill last week that would allow Tesla to sell its cars direct to consumers, rather than through dealers, the Motley Fool financial website called it “Arizona’s Bold Move to Win Tesla Motors’ Gigafactory.”
Never mind the fact that, as state Sen. John McComish told me Tuesday, “I am not sure the bill will get a hearing on the Senate floor.” And that’s just the Senate, never mind the House.
Jim Click, the prominent local auto dealer, told me in an email: “Every businessperson in Tucson should do everything we can to convince Tesla to locate their plant in Tucson! I will, but you are right I would be opposed to change a system of retailing and servicing cars that has proven to work very well for the dealers and manufacturers!”
Perhaps the top reason for the exclamation points and excitement is the 6,500-job figure. A company spokeswoman declined to explain how it arrived at that number, but an SEC filing confirms that it refers to direct employees of Tesla and its partner companies at the factory. That would be a remarkably high number of jobs, considering that Tesla now employs just 6,000 people.
The company has released relatively little information about the proposed plant. What’s clear is that it is key to the company’s plans for producing a mass-market electric vehicle in the next three years and reducing the price of its vehicles from $70,000 for a base vehicle to $35,000, a price that many more people can afford. The company is projecting that will help boost sales from 22,000 worldwide this year to 500,000 by 2020.
Wall Street loves the company, which went public in 2010. Its shares were trading at $38 on the Nasdaq exchange a year ago and are selling for $220 today.
So what are we to do? Legislators, Tucson Regional Economic Opportunities officials and city representatives are doing the right thing by working hard to bring the company to town. But the key to success will be in how we structure any deal, if we’re lucky enough to get the chance.
If incentives alone are what bring a company to town, then it’s probably not a company you want, said Peter Fisher, an emeritus planning professor at the University of Iowa. For years he’s studied the effectiveness of government incentives for private investments.
“If they’re only coming here for that kind of public expenditure, then they probably don’t want to be here, and they probably won’t be here long,” said Fisher, who now works at the Iowa Policy Project.
Incentives should be used to tip the balance, landing a company that is already deeply interested in your city, he said.
“The other thing is, put a limit on it,” Fisher said. “When you go to an auction and start bidding on something, you should have a sense of what you want to bid, instead of whatever it takes.”
Fortunately, the Gift Clause of Arizona’s Constitution forbids the kind of massive public spending on a private company that other states have sometimes laid out. The kind of incentives we’re likely to give are excellent deals on publicly owned land, speedy regulatory approvals and tax breaks for job training and high-tech investment and hiring, incentives that are earned by the company when it lives up to its promises.
Let’s go for the Tesla opportunity — it does seem a great one and a decent fit for Tucson — but we need to keep our heads, too. In the long run, we still have to repair our roads, improve our schools and make the Tucson area live up to its potential, with or without Tesla.