

Inside Elon Musk's $1.4B score - pmcpinto
http://fortune.com/inside-elon-musks-billion-dollar-gigafactory

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cmsmith
The image here of all the states falling over themselves to impress the
popular kid seems straight out middle school, and I don't see much for the
supporters of Tesla or the state to be proud of. The fact is that if all of
these states had just told Tesla to screw off and not offered anything, the
factory would be built in the most economically efficient spot in the US,
boost the national economy, and provide jobs. And if Nevada didn't win this
factory, it would win the next one - without paying $1.4B to do it.

Instead, Tesla used their outsize market influence to shake down the state for
as much cash as possible. In the absence of these payoffs, states would have
to compete on 'business-friendliness' by changing their tax structure or
building permit process - improvements which would be good for all businesses.
Instead we have one set of rules for those at the top of the pyramid and one
set for everyone else.

~~~
raldi
More likely, they would end up buying from a Chinese supplier, and the US
would miss out on all that business. And two decades from now, China would be
the center of the electric car world, instead of the western US.

And perhaps the extra expense and inefficiency of overseas manufacturing
would've stopped the electric car industry from getting off the ground at all.

~~~
georgeoliver
Do you have an idea of the economics of US vs. foreign production for a
factory like this? I've been searching around a bit this morning but the
articles don't discuss that.

~~~
kenrikm
Not shipping heavy batteries halfway around the world should help. But labor
costs will be significantly higher in the US. Not sure if it'll come out to a
wash or not.

~~~
raldi
Indeed -- if the batteries were being made in China, perhaps they'd start
manufacturing the cars there too.

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w1ntermute
Musk's response[0]:

> A casual reader of stories about the Gigafactory might assume that the $1.3
> billion number in the headlines means that the state wrote Tesla a huge
> check for that amount. In fact, Tesla has received no money from the state
> at all.

0: [http://www.teslamotors.com/blog/house-always-
wins](http://www.teslamotors.com/blog/house-always-wins)

~~~
cmsmith
He leaves out the part about how they unsuccessfully tried to demand such a
payment with the old "I'll just take my toys and leave" play.

>Then Musk talked to Sandoval about two weeks later, and the deal was suddenly
off. Musk had changed his demands. He now wanted a staggering $500 million in
cash upfront instead of some of the tax abatements. This was simply impossible
for Nevada. The state didn’t have that kind of money—its entire budget is just
$6.5 billion—and it wasn’t about to write a half-billion-dollar check.

>For a second time, Nevada’s team braced itself and said no. “The
conversations got pretty darn tense,” says Hill. “Tesla was not happy.”

>The company made its pique apparent: On July 23 it shut down the grading work
outside Reno, abruptly sending 240 construction workers home. O’Connell
explains Tesla’s attitude this way: “Okay, fine, if it’s not going to work in
Nevada, we’ll take our shovel and go somewhere else.”

~~~
applecore
That's just negotiation—read _Bargaining for Advantage_ (or _Getting to Yes_ )
if this is even remotely surprising to you.

~~~
cmsmith
The negotiation tactic isn't surprising, no. I was commenting on the fact that
he was using the fact that he didn't win the concession in order to claim the
moral high ground.

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dmritard96
There are so many people drooling over Musk - his brilliance, his
determination to make the world better and more interesting. Not to downplay
him as very few people could accomplish what he has, but it is a bit bizarre
to me that all these things in which so many people seem to think are great,
can't get done unless some billionaire takes them on. Is capitol really the
biggest barrier to moving the world forward at this point? It seems that we
the only way to move and shake things is to have an individual with a ton of
capitol so that people can't get in the way, which is rather stark.

~~~
kyboren
> Is capitol really the biggest barrier to moving the world forward at this
> point? It seems that we the only way to move and shake things is to have an
> individual with a ton of capitol so that people can't get in the way, which
> is rather stark.

Why would you expect otherwise? I have no training in economics or finance,
but it seems to me that affecting such large markets is usually going to take
huge amounts of capital. I'm not convinced it's always about artificial
barriers to entry, but rather the natural barrier to entry: the economies of
scale mean viable competition is expected to take some amount of capital to
bootstrap. When the scale is global, it's probably going to require a lot of
capital.

Now, if you just mean it's disappointing how challenging it seems to be for
non-billionaires to obtain sufficient capital from banks, VCs, etc. to
undertake such high risk/high reward ventures, you may be right in your
disappointment.

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andrewtbham
The comparison to gm is misleading because their valuation is crushed by a
$71B pension liability. It's estimated to be underfunded by $27B.

[http://www.fool.com/investing/general/2014/02/07/why-
general...](http://www.fool.com/investing/general/2014/02/07/why-general-
motors-company-progress-on-its-pension.aspx)

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11thEarlOfMar
I see the whole process as Musk hedging his huge bet on attaining mass-market
sales for the Model 3. He has brand equity along the lines of an Apple and
he's leveraging that equity to the greatest extent he can.

Lower operating costs for the factory means lower manufacturing cost for the
cars means greater sales and/or profitability, therefore, increased chances
that Tesla succeeds in becoming a major global automotive force.

Very appropriate that this bet be made in Nevada.

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SRasch
It is not Teslas fault that Nevada offered them a good deal. You can expect
nothing less from a private company, then for them to get as good deal as
possible.

It is irrational for states to compete for individual businesses, instead of
competing with general good business rules. This is the way it is in the U.S
nowadays. Big companies let states compete for their largest investors. When
big companies, politicians and unions stand side by side you have every reason
to worry. But pointing the finger at the big company is useless, because they
are not under your control. It is the political side that is under democratic
control, and should respond to the interests of the people. The company will
to it's best to advance its own goals and interests.

As it happens, in Tesla's case, that goal is pretty decent. So I'm not that
distraught in this particular case.

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Fede_V
Although in theory I'm a huge support of greater local governance, things like
these are why I'm a bit skeptical in practice.

When companies can force states to bid in exchange for jobs, or to lower
labour regulation/environmental restrictions, etc, it's a very dangerous
slippery road.

~~~
discardorama
> When companies can force states ...

I must've missed something, but where was "force" applied? Did Tesla threaten
to sue Nevada (or Texas)? Did they send in teams of lawyers, threatening to
shut the state down?

No. All that happened was a bit of aggressive negotiation with adult parties,
who were more than willing to play the game. Nobody "forced" anybody to do
anything.

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dmourati
Tesla and Musk masterfully executed this deal. They used competition, timing,
threats, promises, misdirection, PR, and showmanship to unbalance state
governments and bend them to their will. Companies that can execute on this
level have a huge advantage in the market.

------
dang
[https://news.ycombinator.com/item?id=8610781](https://news.ycombinator.com/item?id=8610781)

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jokoon
honestly, I'd make an exception of those vicious tactics because it's tesla
and that electric cars are for the public good. the automotive industry never
developed it and would never have, so I don't care about those tactics at all.
GM already is quite in the red anyways, so why should tesla be any better ?

~~~
neolefty
Ends justify the means?

~~~
jokoon
It's despicable, but I don't see many business bringing innovation like tesla
does. Plus I'm sure the rest of the automotive industry is trying to make it
fail, so I think tesla should use all the means necessary.

