Later today, Tesla will make official that its $5 billion battery Gigafactory will be constructed outside Reno. That makes Nevada the winner of a five-state bake-off that pitted the Silver State against Texas, New Mexico, Arizona and California. But the reality is, despite months of negotiating for the best possible deal among the states, Tesla was almost certainly destined to end up selecting Nevada anyway. The company gave a strong indication it knew that was the case back in July when it broke ground there and prepared the site that now appears to be the location for the Gigafactory. Nevada's win is certainly good news for the state, which ultimately will get up to 6,500 new jobs, according to Tesla's projections. Here's how it was secured:
The right place. Central to Tesla's affinity for Nevada is the geography, especially as concerns the Reno-Sparks area. The Tahoe-Reno Industrial Center can tout its multiple links to Interstate 80, which puts it about 5 hours by truck from Tesla's factory in Fremont, Calif. Better still, the Union Pacific rail line isn't far away, either. There's an airfield nearby to boot.
Other than California, none of the other states could boast of that kind of physical proximity. And while a longer physical supply chain wouldn't matter as much once batteries are being delivered, it matters a lot in the development stage. Tesla executives will be shuttling back and forth frequently; the shorter trip will be less painful.
But Nevada's closeness to Tesla's factory only begins to tell the story of its Goldilocks location. The state is also home to the country's only active lithium mine and the best prospective reserves of new supply as the report in the Reno Gazette-Journal explains. With the Gigafactory expected to boost global demand for lithium carbonate by 15,000 tons annually (it's 160,000 tons worldwide today) according to Alex Walsh of Lithium Exploration Group, that's significant.
Beyond the physical resources, Nevada also offers up the renewable energy that Tesla hopes to use to power much of the Gigafactory's needs. The wind resources aren't especially exceptional compared to competing states, but the solar is -- even outdoing Arizona. If you were looking at this equation purely from a proximity and resource equation, you'd pick Nevada.
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The right politics. Of course, there was more to it than just the "where." Of the four states Tesla didn't pick, it had a fundamental issue with two of them that made it nearly impossible to invest billions there. Texas and Arizona both prohibit Tesla from selling cars at its company-owned stores there. That turns the few locations Tesla does have (1 in Arizona, 3 in Texas) into "galleries" where staff can talk generally about the car, but can't help people buy one. For Tesla to do a deal with either state, it would have needed a change in the rules to allow its direct-sales model. But auto dealers in both Texas and Arizona weren't interested in that, even though Governor Rick Perry lobbied to make it happen.
New Mexico, for its part, struggled to come up with an incentive package to lure Tesla, according to the Santa Fe New Mexican. Given its lack of geographic desirability it was going to need to come up strong on the political side. But going up against "right to work" states like Nevada made that a tougher battle. (Right-to-work states limit unions from requiring dues paying as a condition of employment.)
Of course, California is also not a right-to-work state and up until the last minute, it believed it was in the running. Senator Dianne Feinstein was caught off guard when interviewed by television reporters as she believed her state was likely going to emerge victorious. "I’m sorry about that, but Nevada’s a good neighbor. We have a lot in common,” she said. But realistically, California was never a serious contender. CEO Elon Musk called the state's chances "improbable" back in the spring when he added California to a list that didn't originally even include it. What Musk knew then -- and now -- is that California's legal climate makes it nearly impossible to build a factory like the one Tesla wants here unless you are patient.
The reason is that it's essentially impossible to stop a court somewhere in California from issuing an injunction to stop work on your project if the "right" lawsuit gets filed under some environment or picayune business concern. And while the state has worked to limit such nuisance suits for specific projects, like a proposed NFL stadium in Los Angeles, it hadn't yet done that for Tesla. In the meantime, the company is facing a deadline to ship its Model 3 in 2017, which it says it can't do without the Gigafactory.
So you have a chicken-and-egg problem. One which California and Tesla might solve for the second factory come 2020, but one that was never going to be done in the short time frame the company had in mind for the first such plant. Exit California, along with New Mexico.
The right people. The final asset in the Nevada equation is human capital. First, to get the thing built. Nevada is used to building big. It has put up dozens of hotels and thousands of homes in the past 20 years. The state was a non-stop construction powerhouse until the housing crisis hit. In addition, Apple and Amazon have facilities in the Reno area already, which has become an economic development hub. This is a state that needed to find ways to diversify its economy away from gambling and residential construction and has found ways to do it. Tesla isn't a pioneer to the "new Nevada" and it's therefore taking a smallere risk in heading there.
Overall, just how big a win this is for Nevada will depend on what Governor Brian Sandoval had to give Tesla to get the deal done. The company was seeking $500 million in incentives and support, which would be more than Nevada has ever spent on a single project and would represent more than $75,000 per job the Gigafactory hopes to bring to the state.
But for Tesla to have this sorted out is a big win. The company needs to keep the project on track and can now focus on actually building the factory instead of deciding where it goes. The 3-year race to get the Model 3 to consumers is well underway.
