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December 21, 2014

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State to offer Tesla $1.3 billion in tax breaks to build factory

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Cathleen Allison / AP

From left, Nevada Gov. Brian Sandoval; Steve Hill, executive director of the Governor’s Office of Economic Development; and Telsa Motors CEO Elon Musk answer questions after a news conference at the Capitol in Carson City on Thursday, Sept. 4, 2014.

Updated Thursday, Sept. 4, 2014 | 8:10 p.m.

With the sun shining through the trees and onto the Capitol steps, Gov. Brian Sandoval stepped to the microphone on Thursday afternoon to announce what everyone already knew.

Northern Nevada beat out four states to become the home of Tesla's new $5 billion lithium battery factory.

Sandoval told 500 people gathered in front of the Capitol that Tesla's decision is "a monumental announcement that will change Nevada forever."

What was less known until late Thursday and what Sandoval didn't mention in his speech is what Tesla's factory will cost Nevada.

Sandoval's proposal would offer up to $1.3 billion in tax breaks over 20 years. The Legislature will vote on the proposal next week, and the price tag is far bigger than anyone expected.

It is more than double what Tesla CEO Elon Musk had previously suggested the company needed. It's also 15 times bigger than any other tax deal in Nevada history, and it would be tied for the largest subsidy ever provided to an auto company in U.S. history, according to a 2013 analysis by watchdog group Good Jobs First.

In announcing the deal, Sandoval acknowledged skeptics of government subsidies. But he quickly defended the move, saying it would produce a $100 billion impact on Nevada in the next 20 years. Another state official added that Tesla will have to meet specific goals to collect the tax incentives.

When he stepped to the microphone, Musk started by mispronouncing Nevada. He quickly corrected himself.

Tesla Factory Announcement

Tesla Motors CEO Elon Musk, left, and Nevada Gov. Brian Sandoval shake hands following a press conference where Nevada was announced as the new site for a $5 billion car battery gigafactory, at the Capitol in Carson City, Nev., on Thursday, Sept. 4, 2014. (AP Photo/Cathleen Allison) Launch slideshow »

Among the states competing to win over Tesla, Nevada's tax breaks weren't the biggest, Musk said.

Musk said other factors were more important, including the high confidence that the factory will be ready by 2017 and assurances that batteries can be produced cost-efficiently. Musk praised Nevada as a "get-things-done state."

Musk told reporters that Tesla would stop looking for another state as a backup.

"Nevada is it," he said.

The factory will employ 6,000 workers at an average wage of $25 an hour, and Tesla will seek Nevadans and veterans to hire, Musk and state leaders said.

Tesla's factory would take it a big step closer to mass producing an electric car that costs around $35,000 and can go 200 miles on a single charge. That range is critical because it lets people take most daily trips without recharging, a major barrier to the widespread adoption of electric vehicles.

The "gigafactory," as Tesla calls the project, would bring down the cost of batteries by producing them on a huge scale. The facility would be about 10 million square feet, equivalent to about 174 football fields, and be located at an industrial park about 15 miles east of Sparks, a Reno suburb founded as a railroad town more than a century ago.

Tesla released a rendering of the plant that featured a sleek modern design. Musk said the plant would be aligned due north so equipment could be mapped by GPS. It will be larger than all the other lithium battery plants in the world put together.

The tax proposal now heads to the state Legislature. Lawmakers are schedule to begin meeting Wednesday in a special session. Legislators generally praised the deal but also said they were eager to dive into the details next week.

The ultimate cost of the incentive package to Nevada taxpayers depends on how much economic activity the factory generates. On the low end, it could be worth $865 million, according to Steve Hill, executive director of Sandoval's Office of Economic Development.

Sandoval said that for every $1 Nevada gives up, the project will produce $80 in economic impact. "Even the most skeptical economist would conclude that this is a strong return (on investment) for us," Sandoval said.

State leaders also said the plant would directly or indirectly create 22,000 new jobs over two decades.

But Greg LeRoy, executive director of Good Jobs First, said Sandoval's projections were implausibly rosy.

He called the 80-to-1 return on investment assertion "off the charts false" and said the factory would create no more than about 10,000 permanent, nonconstruction jobs outside the factory.

The factory will be in the Tahoe-Reno Industrial Center, which bills itself as the largest industrial center in the world. At the Tesla site on Thursday, at least a half-dozen road graders, bulldozers and dump trucks were buzzing behind locked gates.

The Associated Press and the Reno-Gazette Journal contributed to this story.

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