Dan Morain: California could be in the running for Tesla’s battery factory, after all
04/20/2014 12:00 AM
04/18/2014 7:23 PM
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Elon Musk probably would be a billionaire even if California didn’t exist. But this state’s green laws and subsidies certainly helped turn Musk golden.
Musk founded Tesla Motors Inc., the sleek all-electric cars that sell for $70,000 or more, and SpaceX, which has the lucrative NASA contract to ferry cargo to the International Space Station. He’s also chairman of SolarCity, the largest installer of rooftop solar panels.
Californians helped create Elon Musk Inc., buying a third of all the Teslas that are on the road and installing more solar panels on our roofs than any other state by far. It’s all encouraged by environmentalist laws, tax breaks and subsidies, courtesy of every Californian who pays taxes or utility bills.
It’s all good for Musk. Tesla’s stock has quadrupled in price in the past year. SolarCity’s stock is up nearly threefold. Forbes magazine estimates Musk’s wealth at $8.2 billion.
So it was quite a slap in February when Tesla announced plans to build a $5 billion, 6,500-employee battery factory in Arizona, New Mexico, Nevada, or, worst of all, Texas, with its insufferable governor who incessantly boasts about raiding other states’ businesses.
California’s liver, it seemed, had become chopped, and the hand that feeds had bite marks.
But in March, Sen. Dianne Feinstein spoke with Musk and told him he ought to reconsider. Gov. Jerry Brown’s GO-Biz operation, which encourages business development, became engaged. Whatever the effort is, it may be having an impact.
“Yes, California has shown interest. And, yes, conversations are going on with the state,” Simon Sproule, vice president for Tesla’s communications and marketing, told me last week.
Maybe it’s a tease. But Musk still wants more stuff from California lawmakers. Sproule said California “can be a viable option,” if conditions are met. California would need to find suitable land and allow construction to begin fast. Musk’s goal is to build what he calls a Gigafactory that would produce enough batteries to manufacture 500,000 cars a year within three years.
“Without the Gigafactory, the base auto business doesn’t work. One begets the other,” Sproule said.
Before California politicians lavish more gifts on Musk’s businesses, let’s review some of what California’s environmentally conscious legislators and residents have done so far.
The California Energy Commission spent $10 million to upgrade Tesla’s factory in Fremont, where General Motors had made Novas and Toyota made Corollas until four years ago. California paid $650,000 to train workers for Tesla. And a California financing authority has given Tesla sales tax breaks on manufacturing equipment worth up to $90 million.
By the end of 2013, Californians owned 8,347 Teslas. That’s a third of the 25,000 cars that had rolled out of Tesla’s Fremont factory through 2013.
The California Air Resources Board, seeking to stimulate electric vehicle sales as it works to reduce greenhouse gases, has given $16.76 million worth of rebates for 6,861 Tesla Model S and Roadsters. That’s 16.8 percent of the $103 million total given in electric vehicle rebates. Tesla sees value in rebates.
“Our growth depends in part on the availability and amounts of government subsidies and economic incentives for alternative fuel vehicles generally and performance electric vehicles specifically,” the company said in its most recent annual report.
The $2,500 rebate program for plug-ins is such a success that the Air Resources Board is running short of cash. The board proposes to end rebates for cars costing more than of $60,000, which means Tesla could lose out. That prospect prompted Capitol visits by Tesla executives and lobbyists, who are asking legislators to intervene and override the wonks at the air board.
Politics being what it is, my guess is that the outcome will depend on where Tesla decides to build its battery factory.
The ability to store electricity is key to the future of alternative energy, and to Musk’s enterprises. The California Public Utilities Commission provided a significant boost to the notion of storage in October when it decreed that private utilities vastly increase their capacity to store electricity.
It’s one of those wild only-in-California ideas. Policymakers are insisting that utilities have the capacity to store 1,325 megawatts by 2020, an amount almost equal to the electricity produced by PG&E’s mammoth Diablo Canyon nuclear power plant.
Like many other California environmental policies, the storage order could spur an industry. It certainly plays into the strategies of Tesla, Musk’s battery factory and SolarCity, among the companies that lobbied to shape the decision.
“The goal is to kick-start the industry,” Commissioner Carla J. Peterman, who authored the decision, told me.
Just as California helped Elon Musk Inc., Musk has provided much to California. His SpaceX factory in Hawthorne employs 3,000 people. Tesla cars will be built here for years to come, whereas Nissan and General Motors reap the benefits of California rebates while building Leafs and Volts in Tennessee and Michigan.
Not to be greedy, but there is plenty of land for a battery factory in the San Joaquin Valley, and plenty of idle hands. Unemployment is above 13 percent in Fresno, Stanislaus and San Joaquin counties, and more than 16 percent in Merced County.
The Valley hardly benefits directly from electric vehicle subsidies. Only 2 percent of the rebates have gone to San Joaquin Valley motorists. The bulk go to early adopters in, where else, the Silicon Valley, wealthy parts of Los Angeles, and coastal Orange and San Diego counties, where ocean breezes blow pollution east.
Assemblyman Henry T. Perea, a Fresno Democrat, represents one of the most distressed areas of the nation and carried legislation signed into law in 2013 that extends alternative energy subsidies. Tesla lobbied for the bill.
“The policies of this state helped build Elon Musk’s company,” Perea told me last week. “It is outrageous that he is looking anywhere other than California to build his factory.”
Who knows whether California can meet Musk’s demands. This is, after all, a state where the toxic waste dump known as Irwindale forced the shutdown of the Sriracha hot sauce factory, claiming that pepper fumes supposedly burn the eyes of a few downwind residents.
But California legislators pass laws that speed the construction of basketball arenas. Surely, a new battery factory is as important. Musk might find it in his best interest. Some of the 6,500 men and women who would work there would raise kids who might become the scientists and engineers who would work for Tesla or SpaceX.
About This BlogDan Morain has been a columnist at The Bee since 2010 focusing on state government and politics. He previously worked for The Los Angeles Times covering the California Supreme Court when Rose Bird was chief justice, the Legislature when Willie Brown was speaker and the governor's office during Gray Davis' tenure. Dan Morain can be reached at email@example.com or 916-321-1907. Twitter: @DanielMorain.
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