Only a year after Tesla Motors and CEO Elon Musk extracted themselves from the $465-million taxpayer stimulus loan that brought critical scrutiny to the company’s performance, the electric automaker has once again put itself under the spotlight that comes with taking government corporate welfare.
Today the company will announce its plans to build a battery manufacturing plant near Reno. The new gambit was the culmination of competition that pitted at least five states against one another for the “privilege” of hosting Tesla’s “Gigafactory” – named so because of the amount of stored power they plan to produce. Cost to build the plant is estimated to be $5 billion, and Musk said he expected the winning bidder to cover at least 10 percent of that, according to the Associated Press. That means at least $500 million in some form of incentives or conciliations from Silver State taxpayers.
The dance has been a marathon, with speculation about the competitors – the others being California, Arizona, New Mexico and Texas – rampant. Who would bid the most? Who will “win?”
“The effect is a game of high-stakes poker…,” AP reported. “The factory promises something that every state wants but rarely gets these days: thousands of good-paying factory jobs and all the residual economic benefits they bring.”
Much was said about the secretive nature of the states’ bids. AP said it filed public records requests for information about the negotiations with the five competing states, and predictably got nothing of value. Most states exempt economic development documents from public disclosure laws, at least until after companies who consider relocation have made decisions. The process is not unique to the Gigafactory project.
Nonetheless the desire to lure Tesla was outsized in light of its performance (unprofitable) and history (short). NLPC has outlined in the past how Musk jiggered accounting records and vacuumed up valuable credits from California’s zero emissions program to appear profitable. It’s most recent earnings release for the second quarter of 2014 showed a $61.9 million loss under Generally Accepted Accounting Principles (also known as Non-Muskian Math). Last month analyst Herb Greenberg noted the phenomenon of enthusiasm for Tesla despite its actual financial performance, and explained how the company “stretches earnings quality.”
“As slick and cool as its Model S and upcoming models may be – and as smart, creative and ingenious as Musk clearly is – Tesla management is not beyond pulling out all stops to make its financials look better than they really are,” Greenberg wrote. “It strikes to the company’s ambitious culture, which is good when it comes to cars, bad when it comes to its financials.”
Which ought to serve as a caution to Nevada lawmakers, who are expected to be called into a special session by Gov. Brian Sandoval to vote on the incentives for Tesla. While there has been (and still is) an irrational exuberance for Tesla on Wall Street, the company is still in its infancy, produces only one model, is struggling to deploy its specialized and costly “Supercharger” network, has apparently abandoned its battery “quick-swapping” scheme, and is only a year away from its emancipation from its $465 million stimulus loan – which at least one analyst said it had to repay because of failures to reach earnings and loan ratio milestones.
Nevadans should also look eastward, where Delaware was burned by another electric vehicle company that once held great promise and enjoyed more than $1 billion in public and private investment: Fisker Automotive. The California-based manufacturer of the electric (Bad) Karma had plenty of money and supporters, including the Department of Energy (with a $539 million stimulus loan), former Vice President Al Gore, and current Vice President Joe Biden. Delaware Gov. Jack Markell cut a $21-million deal with Fisker to occupy a former General Motors plant in the Wilmington area, where the company planned to build a follow-up model to the Karma. But Fisker burned through its money so fast that it never made it to Delaware for any meaningful activity, and state taxpayers were left holding the bag – including having to pay utility bills for the empty plant. Fisker went bankrupt and its carcass was sold to a Chinese company.
Musk loves media attention so long as it’s positive, and he’s bathed in a lot of it – especially since he extracted Tesla from the harsh spotlight that came with the Department of Energy’s stimulus loan program, which had seen a number of failures (like Solyndra). It’s not surprising that Musk would look to government to help his bottom line again, like he has with California’s zero emissions credit scheme. But with the acceptance of what will be an enormous amount of public investment for the “Gigafactory,” will also come (once again) the likely unpleasant and unrelenting rectal exam from the media with regard to company performance, job creation, economic impact, and overall behavior in the state.
In the past Musk has bristled when negative attention has hit Tesla, such as when its vehicles were involved in fire incidents. His typical tactic is to deflect blame and issue other news so the pack-mentality media will again refocus on the positive. A current example is Musk’s recent announcement that Tesla will provide Model S owners with a new 8-year, unlimited mileage warranty for its drive unit and battery pack, which he said will have “a moderately negative effect on Tesla earnings in the short term, as our warranty reserves will necessarily have to increase above current levels.” That’s a nice, tactical way to lower expectations for the coming quarters.
But like much of the Wall Street media now says, Tesla has grown into its own cult. Nevada, be careful about drinking its Kool-Aid.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.