Tesla Motors Inc is depending on the success of its Gigafactory project in Reno, Nevada as a huge help in taking EVs to the mainstream. The Gigafactory should provide Tesla with better economies of scale that would help the firm to produce batteries at a cheaper cost so that it can sell its cars at a cheaper price. Work at the Gigafactory is progressing smoothly, and last week, Tesla got a $1.6B vote of confidence from Panasonic Corp in addition to the first $500M investment that the firm made in the project.
Tesla has been able to move the Gigafactory project along quickly thanks to the support its received from the state of Nevada. It is a well-known fact that Tesla got some impressive tax incentives in exchange for setting up its Gigafactory in the State. Part of the deal gives Tesla the ability to operate tax free for the first ten years followed by very low taxes during the second ten years.
Nevada State thinks that the tax breaks should help Tesla get the project off on the right foot. The Gigafactory would in turn create jobs and jumpstart an economic boom in the state. However, findings by Reno Gazette-Journal as published on Sunday suggests that although the project is moving ahead of schedule it is far behind on job creation and drawing investments to the state.
Tesla’s Gigafactory is not living up to the hype – yet
To start with, Tesla’s Gigafactory is not creating as many jobs as hoped, raising concerns about the validity of the projections of the economic impact studies (by the state) and the forecasts that Tesla brought out when it applied for tax breaks. The impact study posits that Tesla would have created 700 jobs and Tesla says it had only hired 300 by the end of 2015. Yet, a count of permanent jobs on the site as of Sept 30 shows that the Gigafactory has employed only 82 persons.
Nevada state-hired economists seem to have overestimated the initial amount of investment that Tesla will bring to the state. When the state was deciding on a tax break package for Tesla, the study team said that the firm would have made a $1B capital investment by the end of 2015. Yet, by September 30, the firm had only spent $238M in the project.
Despite the progress being made in having the Gigafactory ahead of schedule, Tesla Motors has not lived up to its promise on the number of construction jobs that the project would create. Tesla said it would have created 2,505 construction jobs by June 2015 but it has only created 1,348 jobs at the end of June. The difference between the estimates and the actual numbers does not suggest that Tesla planned to mislead the state in order to get great tax breaks – after all, the state also did an impact study. However, the disparity suggests that someone somewhere has overestimated what Tesla could do with the Gigafactory and the hype could come back to haunt the firm as the project matures.
Shares of Tesla Motors were down 0.58% to close at $204.99 on Friday and the stock might open lower this week if the market takes the news coming out of the Gigafactory as less than positive. Yet, fund managers at Marcus Capital are seeing the weakness in Tesla Stock as opportunity to buy more of the stock.
News has it that Marcus Capital has bought $5,328,000 worth of Tesla stock and Tesla now makes up 5.7% of Marcus Capital’s portfolio. A number of institutional investors such as Wunderlich Securities, Baker Avenue and GW & Wade have also increased their Tesla Motor holdings.