5 ms·

Inside Elon Musk's $1.4B score

108 points by pmcpinto 12y ago

w1ntermute 12y ago
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 12y ago
  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.”
  - andrewtbham 12y ago
    sounds like textbook negotiation tactics
    - w1ntermute 12y ago
      Exactly - anyone who has taken a basic negotiation class or read a book on the topic would know that this isn't controversial at all. It only sounds like that because the authors of these articles know that the vast majority of people have no idea how negotiation works, so they can just report what happened out of context and stoke outrage in their readers (thereby driving even more clicks/pageviews).
      - maaku 12y ago
        It's possible to be both a textbook tactic and a dick move at the same time, you know.
  - applecore 12y ago
    That's just negotiation—read Bargaining for Advantage (or Getting to Yes) if this is even remotely surprising to you.
    - cmsmith 12y ago
      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.
  - justifier 12y ago
    there is a great story about the construction of the dome of the duomo in firenze, the commission was given to brunelleschi but due his unconventional pitch and revolutionary ideas he was required to coopt the work with ghiberti, a contemporary who defaulted a different commission that was refused to brunelleschi due to his ideas being ahead of their time brunelleschi protested but eventually agreed to allow ghiberti to be on site and help with the work, and though brunelleschi laid some of the most dangerous bricks himself, ghiberti was said to have spent his time drinking and lazing off, this infuriated brunelleschi who knew ghiberti was unable to do the work necessary but would eventually share in the credit, and after some time brunelleschi fell ill and tended his bed, ghiberti was then forced to take lead on the project but being as he was unqualified to lead the project the project began to fall apart before it was completely scrapped the city fired ghiberti and the next day brunelleschi's illness lifted, he returned to finish the job and the dome still stands to this day
- avn2109 12y ago
  These Tesla PR pieces are pretty funny, and Musk (if he really writes them) seems to have a dry wit about him. "... but, if you have been to Nevada, you will notice that there is quite a lot of extra land with nobody on it. This is not in short supply."
cmsmith 12y ago
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 12y ago
  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 12y ago
    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 12y ago
      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 12y ago
        Indeed -- if the batteries were being made in China, perhaps they'd start manufacturing the cars there too.
andrewtbham 12y ago
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-motors-company-progress-on-its-pension.aspx http://www.fool.com/investing/general/2014/02/07/why-general...
11thEarlOfMar 12y ago
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.
Fede_V 12y ago
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.
- iandanforth 12y ago
  Did they get labor law concessions? I didn't see that bit in the article. If you're referring to the direct-sales law I'm not sure that counts.
  - Fede_V 12y ago
    In this case, no. They merely obtained massive tax breaks and lots of free land/roads. However, even if you completely support local governance in the abstract, is there a limit past which you feel uncomfortable in terms of concessions to draw in jobs? For example, Ireland has structured its tax laws exactly in the way foreign corporations demand so EU based corps can avoid paying taxes. Should this be allowed?
- freerobby 12y ago
  Dangerous how?
- discardorama 12y ago
  > 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.
  - deleted 12y ago
    [deleted]
dmourati 12y ago
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.
dmritard96 12y ago
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.
- jv22222 12y ago
  It is stark. Tony Stark.
- kyboren 12y ago
  > 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.
jokoon 12y ago
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 12y ago
  Ends justify the means?
  - jokoon 12y ago
    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.
SRasch 12y ago
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.
dang 12y ago
https://news.ycombinator.com/item?id=8610781 https://news.ycombinator.com/item?id=8610781

108 points by pmcpinto 12y ago

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 12y ago
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.”
- andrewtbham 12y ago
  sounds like textbook negotiation tactics
  - w1ntermute 12y ago
    Exactly - anyone who has taken a basic negotiation class or read a book on the topic would know that this isn't controversial at all. It only sounds like that because the authors of these articles know that the vast majority of people have no idea how negotiation works, so they can just report what happened out of context and stoke outrage in their readers (thereby driving even more clicks/pageviews).
    - maaku 12y ago
      It's possible to be both a textbook tactic and a dick move at the same time, you know.
- applecore 12y ago
  That's just negotiation—read Bargaining for Advantage (or Getting to Yes) if this is even remotely surprising to you.
  - cmsmith 12y ago
    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.
- justifier 12y ago
  there is a great story about the construction of the dome of the duomo in firenze, the commission was given to brunelleschi but due his unconventional pitch and revolutionary ideas he was required to coopt the work with ghiberti, a contemporary who defaulted a different commission that was refused to brunelleschi due to his ideas being ahead of their time brunelleschi protested but eventually agreed to allow ghiberti to be on site and help with the work, and though brunelleschi laid some of the most dangerous bricks himself, ghiberti was said to have spent his time drinking and lazing off, this infuriated brunelleschi who knew ghiberti was unable to do the work necessary but would eventually share in the credit, and after some time brunelleschi fell ill and tended his bed, ghiberti was then forced to take lead on the project but being as he was unqualified to lead the project the project began to fall apart before it was completely scrapped the city fired ghiberti and the next day brunelleschi's illness lifted, he returned to finish the job and the dome still stands to this day
avn2109 12y ago
These Tesla PR pieces are pretty funny, and Musk (if he really writes them) seems to have a dry wit about him. "... but, if you have been to Nevada, you will notice that there is quite a lot of extra land with nobody on it. This is not in short supply."

cmsmith 12y ago

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 12y ago
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 12y ago
  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 12y ago
    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 12y ago
      Indeed -- if the batteries were being made in China, perhaps they'd start manufacturing the cars there too.

andrewtbham 12y ago

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

11thEarlOfMar 12y ago

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.

Fede_V 12y ago

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.

iandanforth 12y ago
Did they get labor law concessions? I didn't see that bit in the article. If you're referring to the direct-sales law I'm not sure that counts.
- Fede_V 12y ago
  In this case, no. They merely obtained massive tax breaks and lots of free land/roads. However, even if you completely support local governance in the abstract, is there a limit past which you feel uncomfortable in terms of concessions to draw in jobs? For example, Ireland has structured its tax laws exactly in the way foreign corporations demand so EU based corps can avoid paying taxes. Should this be allowed?
freerobby 12y ago
Dangerous how?
discardorama 12y ago
> 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.
- deleted 12y ago
  [deleted]

dmourati 12y ago

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.

dmritard96 12y ago

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.

jv22222 12y ago
It is stark. Tony Stark.
kyboren 12y ago
> 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.

jokoon 12y ago

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 12y ago
Ends justify the means?
- jokoon 12y ago
  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.

SRasch 12y ago

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.

dang 12y ago

https://news.ycombinator.com/item?id=8610781 https://news.ycombinator.com/item?id=8610781