Thinking In and Out of the Box: The Art and Science of Economic - - PowerPoint PPT Presentation

Thinking In and Out of the Box: The Art and Science of Economic Impact Analysis

Tesla Overview

• Over 6,000 employees, over 125 stores and service

locations worldwide, and cars on the road in 37 countries

• Tesla factory is a 5,500,000 square foot facility

located in Fremont California that was formerly the a joint venture facility between General Motors and Toyota

• Tesla was founded in 2003 by Silicon Valley entrepreneurs who wanted

“to prove electric vehicles could be awesome.”

• Models
• The Tesla Roadster
• 2008; 0-60 mph in 3.7 seconds; 245 miles per charge
• Model S
• 2012; 0-60 mph in 4.2 seconds; 265 miles per charge
• Model X
• To be introduced in 2015 as a crossover SUV

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Tesla Platform and Pow ertrain

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Model S Model X

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The Tesla Deal Tim eline

• October 2013 – Tesla calls

– 5 million square foot battery manufacturing plant the “Gigafactory” – $5 billion initial investment in facility: $1 billion in building, $4 billion in equipment

• An additional $5 billion in planned replacement equipment over a

subsequent 10 year period

– 6,500 direct jobs on the site with an average wage of $27 per hour with an excellent benefit package – Construction employment of approximately 4,500 construction and installation workers over a three year period – Looking at the western United States including Nevada

• “Giga” comes from the 2020 projected

plant capacity: 35 gigawatt-hours (GWh) per year in individual cells and 50 GWh per year in battery packs

• Will produce more lithium ion batteries

annually than were produced worldwide in 2013

• Will produce enough lithium ion batteries

to outfit 500,000 cars per year

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• There are nearly 7,000 lithium ion cells (size of AA battery) in the Tesla

Model S chassis

• Tesla estimates by the end of the year one the Gigafactory will drive down the

cost of its battery pack by more than 30 percent

The Gigafactory

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The Tesla Deal Tim eline

• October 2013 – Tesla RFI (Request for Information)

– Grants, Incentives and Abatements, Training – Site: 300-500 acres

• Existing structures, former use, previous occupants, current

zoning, building size (square feet)

– Transportation

• Closest highway and railway to Fremont, CA

– Timeline estimates for the permitting process – Power

• Cost of 300MW of power demand
• Natural gas rate for large industrial use

– Water

• Availability and cost of 250,000 gallons per day

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The Tesla Deal Tim eline

• October 2013 – Tesla RFI (cont.)

– Environmental Health and Safety – Incidence Rates for Natural Disasters

• Earthquakes, tornadoes, hurricanes, floods, landslides, blizzards,

sinkholes, drought

– Labor Force

• Size and availability

– Most common industries – Education

• November 2013

– GOED distributes (RFI) to Regional Development Authorities (RDA’s) in northern and southern Nevada

• Two sites in the South and three in the North

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The Tesla Deal Tim eline

• December 2013

– Tesla team visits both southern and northern Nevada

• January 2014 – bad news

– Over 20 years Nevada’s “off the shelf” incentive package is $650 million behind New Mexico – Over the same period Nevada’s labor cost is $250 million higher than Texas or New Mexico – $900 million overall

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The Tesla Deal Tim eline

• February 2014

– Modeled Northern Nevada’s logistics advantage

• $300 million advantage over Texas or New Mexico
• $600 million to go => Special Legislative Session

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The Tesla Deal Tim eline

• March 2014

– Applied Economics is commissioned to study expanding Nevada’s statutory abatement and incentive programs

• Boundaries:

– Could not touch general fund – Must be performance based with accountability and clawbacks

• Deal rules and guidelines:

– “Don’t fall in love with the deal” » Set up hard and fast boundaries you won’t cross – “Earn the last look” » Best service and quality » Be responsive » Have the best business environment » Overcome obstacles » Remove roadblocks

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The Tesla Deal Tim eline

• April 2014 – Deal bargaining and brinkmanship

– Still $600 million behind New Mexico and $400 million behind Texas – Series of offers and rejections

• Power costs and the rate rider
• 100 percent abatements
• Free land
• $21 million Catalyst grant
• $42 million road to California
• Economic Diversification District
• May 2014

– Meeting water demands

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The Tesla Deal Tim eline

• June 2014 – Deal moves forward again

– Tesla expands land size to 1,000 acres and starts moving dirt – Apparent agreement is reached and “Discussion Topics Outline” is presented to Governor and senior cabinet members

• July 2015 – Done Deal?

– Impact analysis is revised to reflect new information

• Wages to be near $60,000 per year with gold/ platinum benefit plan
• State Demographer provides supporting REMI analysis

– Special Legislative Session schedule for July 21st – July 18th Elon Musk describes a necessary restructuring and asks for 10 percent of the cost of the factory up front ($500 million)

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The Tesla Deal Tim eline

• July 2014 – Done Deal? (cont.)

– Restructure $500 million requirement using IDRB’s

• Accountant's say no, those will show up on the books

– Tesla requests General Obligation Bonds

• Nevada says no

– July 25th conversations break down and grading stops

• August 2014 – Putting it back together

– “Radio silence” for the first two weeks of the month – Closing the gap

• Repurpose the film tax credit and the home insurance office tax credit

to establish $195 million in transferable tax credits

• With $300 million commitment from Panasonic at Tesla’s July 31st

board meeting

– August 28 th Steve Hill and Diarmuid O’Connell strike a deal

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The Tesla Deal Tim eline

• September 2014 – Labor Day

– On September 1st Governor Sandoval and Elon Musk finalize Tesla coming to Nevada – Formal announcement is made September 3rd

• Including $1.3 billion incentive package and $100 billion economic

impact

– State Legislature goes into Special Session on September 10 th and adjourns 48 hours later with unanimous approval of the Tesla deal

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20 Year Econom ic Im pact Analysis

Regional Multipliers

Direct Indirect Induced Total Jobs 6,500 3,374 3,015 12,888 Payroll (Billions) $6.7 $3.6 $2.5 $12.7 Output (Billions) $37.5 $8.6 $6.8 $52.9

National Multiplier

Direct Indirect Induced Total Jobs 6,500 7,814 8,402 22,715 Payroll (Billions) $6.7 $9.8 $7.6 $24.1 Output (Billions) $37.5 $36.6 $22.8 $96.9

Floor Ceiling Supply Chain Development/Migration Clustering

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20 Year Econom ic Im pact Analysis

Regional Multipliers Direct Indirect Induced Total

Jobs (1.98) 6,500 3,374 3,015 12,888 Payroll (Billions) $6.7 $3.6 $2.5 $12.7 Output (Billions) $37.5 $8.6 $6.8 $52.9

National Multiplier

Jobs (3.49) 6,500 7,814 8,402 22,715 Payroll (Billions) $6.7 $9.8 $7.6 $24.1 Output (Billions) $37.5 $36.6 $22.8 $96.9

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20 Year Tax Revenue Im pact1

Tax Revenue2 Abatements Difference

Direct Indirect Total Regional Multipliers $459.6 $776.1 $1,235.7 $1,299.2

• $63.5

National Multipliers $459.6 $1,486.6 $1,946.2 $1,299.2 $647.0

1 In Millions of Current Dollars 2 Net of Abatements

Over 20 years based on national multipliers the Gigafactory will generate:

– $447 million in state General Fund revenue – $986 million in local government revenue – $513 million in K-12 education revenue

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20 Year Build-out Sum m ary

Regional Multipliers National Multipliers Construction Equipment Installers Jobs 12,888 22,715 4,538 1,306 Annual Wage $54,626 $58,331 $46,312 $57,639 Nevada Job Growth 1.2% 2.1% Reno MSA Job Growth 7.3% 12.9% Nevada Wage Growth 1.5% 2.9% Reno MSA Wage Growth 8.8% 16.6% Nevada GRP Growth 2.2% 4.1% Reno MSA GRP Growth 14.3% 26.2%

Governors Office of Econom ic Developm ent

Bob Potts Research Director 702-486-0609 bpotts@diversifynevada.com

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