How Will Tesla Impact The Northern Nevada Economy?

Jul 31, 2016

The Tesla gigafactory has officially opened, but questions remain regarding how northern Nevada is preparing and responding to economic growth spurred by the company. To explore this issue for our series Behind the Battery Boom, we turn to our contributor Bob Conrad of ThisisReno who recently toured the plant.

  East of Reno, construction workers are out in the sweltering heat building one of the largest factories on the planet.

“The Gigafactory is the most exciting factory in the world. If you can work on any factory in the world, you’d want to work on this factory.”

That’s Tesla CEO Elon Musk speaking to reporters.

To date, the factory is about 14 percent completed and is ramping up construction ahead of projections. Musk says they’re gearing up for about three times the production than originally anticipated.

“We need to get to roughly a third the size of the original building in order to support half a million cars a year (by 2018)," Musk says.

Absent from this press conference, though, was acknowledgement of the factory’s local impact.

When asked if businesses like Tesla can be sustainable without subsidies, Musk said that Nevada is not paying for the Gigafactory.

“It was important for Nevada to offer that package to show that they cared. It doesn’t move the needle on economics," he says. "All we got was a concession that sales and use tax on equipment in the building — we’re not charged that for some period of time. That package was more showing that Nevada cared about Tesla being here than anything else.”

But for those impacted by the factory’s presence and growth, uncollected tax credits could be a bigger boon to local governments which have to provide services to a growing population.

Instead, millions of dollars in tax credits were sold by Tesla to a Las Vegas casino which used them for gaming fees at lower than face value.

Local reactions to that news have been mixed.

“I think Tesla has the right to trade or transfer their tax credits to whomever they want. That’s why when they originally got them, they were called transferable and as a business decision, they have the right to do whatever they want with them.”

“I think it’s really a dangerous precedent to get into tax credits in the first place, and in the second place, I think that when they’re then going to be sold as a commodity and not used for what they were intended for, I think that’s an even bigger warning sign.”

That was Reno residents Steve Walker and Jennifer Brand speaking to us outside the South Valleys Library.

Reno City Councilman Paul McKenzie argues that the Gigafactory’s incentive package should have included more support for local services.

“State and local governments that depend on those taxes for funding to provide services — when we give those credits, they’re deprived of those funds," McKenzie says. "When you transfer these credits to a casino in southern Nevada, you’ve now eliminated that argument.”

Steve Hill of the Governor’s Office of Economic Development disagrees.

“The benefit to the state comes from what Tesla is bringing, which is a lot of investment, a big boost in the economy and the jobs that they create," he says. "The ability for them to sell that tax credit to others is a neutral issue for the state. Most of the time, you don’t sell the (tax credits) for face value, but it’s close.”

The Kenny Guinn Center for Policy Priorities, a Nevada-based policy think tank, warns that such tax credits may not be sufficient.

The Center’s Nancy Brune says that transferable credits usually sell at a discount, but the state still forgoes the entire original amount.

“I think the question is, are we collecting enough information to be able to, at the end of the day, assess whether our portfolio of development tools is having the intended impact and we are realizing the desired outcomes,” she says.

In fairness, Tesla is not to blame. Arguably, all of these impacts would be on the rise absent Tesla, but the company, which is contributing to local economies, has become a convenient target for critics.

Local economies in turn rely on less tangible spillover effects of the Gigafactory’s construction, such as new businesses opening up in the area and an increased investment in technology developments.

The hope is that the path forward will reap benefits to help satisfy the area’s growth.

Thanks to Natalie Van Hoozer and Michelle Billman for their help producing that story. To see photos from Bob’s tour of the gigafactory, visit ThisisReno.com.