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The Negotiations Game Behind Tesla's Gigafactory

71 points by oska 12y ago

oldspiceman 12y ago
The article states: "He took a process that typically plays out behind the scenes and made it public." and then suggests that his methods were manipulative. Every successful company negotiates like this. You just never hear about it. They keep it under wraps and as a result nobody knows what really happened behind closed doors.
- ealexhudson 12y ago
  I read that as 'public between the competitors', not as in bringing any extraordinary daylight to the issue. It clearly says many of the politicians involved were thinking carefully about what the public would think when the deal was announced. I don't think people are generally that impressed by this sort of corporate welfare. If the public takes on the burden of some of the liabilities, they should be entitled to some of the upside. Creating jobs is great (even though it also generates new public liabilities), but it's difficult to see this deal as worthwhile.
Animats 12y ago
Nevada overpaid for those jobs. 6,500 employees? Probably only during startup. Once it's running, it should be mostly automated. The Chevy Volt battery plant has about 300 employees.
- mschuster91 12y ago
  But all the tax breaks and other incentives only apply when Tesla meets the job-count required, so Tesla has a massive incentive to uphold the jobs...
  - Animats 12y ago
    No. "The factory is supposed to employ 6,500 people, but that is not what the tax breaks are tied to." - New York Times. http://www.nytimes.com/2014/09/13/business/nevada-woos-tesla-plant-in-tax-deal-but-economic-benefits-prompt-debate.html http://www.nytimes.com/2014/09/13/business/nevada-woos-tesla... It's really "up to 6,500 people". That's only if the later stages of factory expansion take place in the future. They're hiring. Right now, they have 14 job openings. http://www.rgj.com/story/news/2014/10/16/tesla-battery-plant-jobs-advertised/17341211/ http://www.rgj.com/story/news/2014/10/16/tesla-battery-plant...
- butwhy 12y ago
  "Once it's running, it should be mostly automated" - citation needed. Be aware that Tesla are at 10,000 employees now and they aren't making that many cars.
- adventured 12y ago
  Tesla's plans are to sell about 40 or 50 times as many vehicles per year as what GM is doing with the Volt, within a decade. Further, being the center of global battery production for electric cars, has the strong potential to lure other suppliers. And that's before getting into that Tesla would no doubt like to drastically increase the size of production over ~20 years, which is why they sought out so much land. How about in 20 years, Tesla employs 12,000 people, in several facilities in that industrial park, making 25 million batteries per year? Hardly an outrageous outcome, when you consider the truly massive scale of the auto industry.
  - brc 12y ago
    Is the NPV of each of Hansom jobs worth $20k to the state? Hard to say. But once the factory is built, it will be there a long time. Even if the company Tesla fizzles and dies, a big battery plant will still be pumping out batteries for decades to come under someone's stewardship. Put it this way - what was the NPV of the first jobs established by Ford in Detroit 100 years ago?
- nraynaud 12y ago
  The best part, is that the tax breaks will cut the schools budgets so Tesla will make a donation. What about cutting the army budget and making the army dependent on donations? There is some kind of beginning of last century feeling in all that, capitalism crushing lives by the millions without restraint.
  - grecy 12y ago
    "I look forward to the day schools have all the money and supplies they need, and the Army has a bake-sale to buy new boots."
- blisterpeanuts 12y ago
  But will Nevada actually pay $1.4 billion out of its treasury? My understanding is that most of that is tax abatements; Tesla agreed to locate a huge industrial plant in that state in exchange for 20 years of no property, sales, and payroll taxes. What Nevada gets in return is 6,500 permanent jobs, $43 million paid to a local school district, a highway rerouted, and massive ripple effects of all that industrial activity. For example, the Reno airport is about to become very busy, as will local grocery stores, restaurants, motels, hardware stores, lumber supply stores, etc. It's not as though Nevada would have been $1.4 billion richer if Tesla had not located a plant there. This notion however is widely expressed on the internet and suggests that people do not understand what a tax break means.
kanamekun 12y ago
The last paragraph really blew me away: << By November, when Musk discussed the deal on an earnings call, he sounded exasperated with continued condemnation of the terms he had extracted from Nevada. Calling the deal a “super-good idea” for the state, he said the criticism “kind of bugs me. I thought we got an okay incentive package, given the scale, but not a super-huge one.” >> If he honestly thinks that a $1.4 billion in tax breaks and free land is just a "okay" incentive package, it explains a lot about how he was able to ask for $500m cash upfront from the state to fund the factory.
- faitswulff 12y ago
  One of my takeaways was that you have to be somewhat pathological to be able to make wagers of that size during negotiations.

71 points by oska 12y ago

The article states: "He took a process that typically plays out behind the scenes and made it public." and then suggests that his methods were manipulative. Every successful company negotiates like this. You just never hear about it. They keep it under wraps and as a result nobody knows what really happened behind closed doors.

ealexhudson 12y ago
I read that as 'public between the competitors', not as in bringing any extraordinary daylight to the issue. It clearly says many of the politicians involved were thinking carefully about what the public would think when the deal was announced. I don't think people are generally that impressed by this sort of corporate welfare. If the public takes on the burden of some of the liabilities, they should be entitled to some of the upside. Creating jobs is great (even though it also generates new public liabilities), but it's difficult to see this deal as worthwhile.

Animats 12y ago

Nevada overpaid for those jobs. 6,500 employees? Probably only during startup. Once it's running, it should be mostly automated. The Chevy Volt battery plant has about 300 employees.

mschuster91 12y ago
But all the tax breaks and other incentives only apply when Tesla meets the job-count required, so Tesla has a massive incentive to uphold the jobs...
- Animats 12y ago
  No. "The factory is supposed to employ 6,500 people, but that is not what the tax breaks are tied to." - New York Times. http://www.nytimes.com/2014/09/13/business/nevada-woos-tesla-plant-in-tax-deal-but-economic-benefits-prompt-debate.html http://www.nytimes.com/2014/09/13/business/nevada-woos-tesla... It's really "up to 6,500 people". That's only if the later stages of factory expansion take place in the future. They're hiring. Right now, they have 14 job openings. http://www.rgj.com/story/news/2014/10/16/tesla-battery-plant-jobs-advertised/17341211/ http://www.rgj.com/story/news/2014/10/16/tesla-battery-plant...
butwhy 12y ago
"Once it's running, it should be mostly automated" - citation needed. Be aware that Tesla are at 10,000 employees now and they aren't making that many cars.
adventured 12y ago
Tesla's plans are to sell about 40 or 50 times as many vehicles per year as what GM is doing with the Volt, within a decade. Further, being the center of global battery production for electric cars, has the strong potential to lure other suppliers. And that's before getting into that Tesla would no doubt like to drastically increase the size of production over ~20 years, which is why they sought out so much land. How about in 20 years, Tesla employs 12,000 people, in several facilities in that industrial park, making 25 million batteries per year? Hardly an outrageous outcome, when you consider the truly massive scale of the auto industry.
- brc 12y ago
  Is the NPV of each of Hansom jobs worth $20k to the state? Hard to say. But once the factory is built, it will be there a long time. Even if the company Tesla fizzles and dies, a big battery plant will still be pumping out batteries for decades to come under someone's stewardship. Put it this way - what was the NPV of the first jobs established by Ford in Detroit 100 years ago?
nraynaud 12y ago
The best part, is that the tax breaks will cut the schools budgets so Tesla will make a donation. What about cutting the army budget and making the army dependent on donations? There is some kind of beginning of last century feeling in all that, capitalism crushing lives by the millions without restraint.
- grecy 12y ago
  "I look forward to the day schools have all the money and supplies they need, and the Army has a bake-sale to buy new boots."
blisterpeanuts 12y ago
But will Nevada actually pay $1.4 billion out of its treasury? My understanding is that most of that is tax abatements; Tesla agreed to locate a huge industrial plant in that state in exchange for 20 years of no property, sales, and payroll taxes. What Nevada gets in return is 6,500 permanent jobs, $43 million paid to a local school district, a highway rerouted, and massive ripple effects of all that industrial activity. For example, the Reno airport is about to become very busy, as will local grocery stores, restaurants, motels, hardware stores, lumber supply stores, etc. It's not as though Nevada would have been $1.4 billion richer if Tesla had not located a plant there. This notion however is widely expressed on the internet and suggests that people do not understand what a tax break means.

kanamekun 12y ago

The last paragraph really blew me away: << By November, when Musk discussed the deal on an earnings call, he sounded exasperated with continued condemnation of the terms he had extracted from Nevada. Calling the deal a “super-good idea” for the state, he said the criticism “kind of bugs me. I thought we got an okay incentive package, given the scale, but not a super-huge one.” >> If he honestly thinks that a $1.4 billion in tax breaks and free land is just a "okay" incentive package, it explains a lot about how he was able to ask for $500m cash upfront from the state to fund the factory.

faitswulff 12y ago
One of my takeaways was that you have to be somewhat pathological to be able to make wagers of that size during negotiations.