Tesla’s $330M Tax Incentives from Nevada Spurs Debate on Value, Fairness

Tesla will benefit from more than $330 million in tax incentives for the expansion of its gigafactory complex in Nevada.

The electric vehicle maker is set to invest more than $3.6 billion with two new factories at its site near Reno. The tax abatement was approved by the Governor Joe Lombardo’s Office of Economic Development last week, on the condition Tesla creates 3,000 new jobs at an hourly wage of $33.49. The company previously received a package of $1.3 billion in tax breaks and other incentives from the state in 2014.

One of the two new factories will produce semi-electric trucks and the other will make battery cells.

The package has revived debates about the value of investment incentives. There has also been criticism about the transparency and speed of the approval process.

The dollar figure of the 20-year tax abatement was held secret until March 6 due to a non-disclosure agreement with Telsa, sparking complaints by Democratic state lawmakers they had only three days to review it.

“There is little to no opportunity to explore how this deal may affect housing supply, public schools, public safety, and other vital government services in the region,” state Sen. Dina Neal, who chairs the legislature’s Revenue and Economic Development Committee, said in a statement.

Social-justice campaigners, meanwhile, have called into question giving such large subsidies to a company run by the world’s richest man, Elon Musk, and said it ignores the needs of working-class residents.

Similar debates are raging in other states, as the fierce competition to land gigafactory investments results in large subsidies being handed out to EV manufacturers. 

Last year Georgia provided $1.8 billion in incentives to Hyundai for siting its first US EV factory in the state. The deal, which followed another large package provided to Rivian, was the largest economic development deal in the state’s history. As in Nevada, both the transparency and amount of the packages received criticism. 

Investment incentives have been in use since the post World War Two era but have ignited regular controversy since they started to balloon in siz in the 1990s, with Southern states being particularly well known for offering large packages in order to win investment projects. While they can be useful tools for incentivizing much-needed investment in locations that might otherwise struggle to attract it, incentives competition between states can also create a race to the bottom and unnecessarily inflate the size of the packages. As the deal sizes have risen, the return on investment in terms of numbers of jobs created has declined, experts warn.

In a 2021 op-ed for foreign direct investment publication Investment Monitor, FDI consultant Douglas van den Berghe cautioned: “A competitive, stable, predictable and transparent business environment is worth much more than a huge one-off cash grant that evaporates over time if other critical policies are not in place, or if they change.”

Advocating a careful approach, he advises: “Communities can use the incentive process to accentuate their natural advantages and build strong ties between community and company … Instead of a zero-sum game that drains the location of funds when it ‘bribes’ a company, incentive negotiations can present an opportunity for countries to get more of what they need from the private sector.”