Details emerge about Tesla’s Nevada gigafactory deal

September 5, 2014, 2:11 PM UTC

Standing at a podium on the Capitol steps in Carson City, an elated—even glowing—Nevada Gov. Brian Sandoval announced Thursday that electric automaker Tesla Motors had selected the state as the official site for its $5 billion advanced battery factory.

Now, with 6,500 jobs that will pay an average wage in excess of $25 an hour and an estimated $100 billion in economic impact over the next 20 years hanging in the balance, it’s the state legislature’s project to lose.

The agreement “will change Nevada forever,” Sandoval said during the press conference, which was broadcast via live-feed on YouTube.

Tesla Motors (TSLA) intends to build a massive factory that’s designed to produce more lithium-ion batteries annually by 2020 than were made worldwide in 2013. That is, if the Nevada Legislature approves a tax incentive deal that will allow the company to operate in the state virtually tax-free for a decade.

Discussions will continue with the other states contending for the gigafactory, according to Tesla Motors spokesman Simon Sproule. The company has been scouting out sites and negotiating deals with officials in Arizona, California, New Mexico and Texas. “We intend to have multiple site options but obviously one will now go first and fastest to completion,” Sproule said in an emailed comment after the press conference.

The net-zero gigafactory will be built in the Tahoe-Reno Industrial Center, a massive 107,000-acre park that already houses Walmart and PetsMart distribution centers, NV Energy and pet food manufacturer Kal-Kan. Fulcrum BioEnergy plans to build a biofuel refinery at the industrial park, according to an announcement made Thursday during the National Clean Energy Summit in Las Vegas.

Sandoval didn’t reveal the value of the tax incentives package during the press conference. But according to information released Thursday by the governor’s office, the package includes a 100 percent abatement of modified business taxes as well as real and personal property taxes until June 30, 2024. Sales tax would be abated until 2034.

If approved by the legislature, Tesla would also receive a transferable tax credit of $12,500 per permanent full-time job, up to 6,000 jobs as well as transferable tax credits of 5 percent for the first $1 billion and 2.8 percent for the next $2.5 billion investment.

In all, the tax package is believed to be worth nearly $1.3 billion over 20 years, far beyond any other incentives deal provided by Nevada. (Fortune previously reported that such incentives are often not worth it; you can read that report here.)

Nevada has historically been thrifty with its economic development spending, said Leigh McIlvaine, research analyst at Washington think tank Good Jobs First. The $89 million awarded to Apple for a data center in 2012 set a state record, McIlvaine added.

Good Jobs First has publicly expressed concern that competition among states to land the gigafactory deal would lead to massive subsidies for Tesla that will ultimately hurt taxpayers.

Under the deal with Tesla, the legislature must also clarify state law to allow Tesla to sell cars directly to consumers and extend economic development rate rider electric program from five to 10 years. Tesla, in turn, has committed $1 million to fund advanced battery research at UNLV and a direct contribution to K-12 education of $37.5 million beginning in August 2018. The company, which plans to invest $5 billion in the facility within three to five years, will also prioritize the employment of residents and veterans.

Tesla Motors CEO Elon Musk, who attended the press conference, insisted that the tax incentives deal wasn’t the driving reason behind company’s decision to pick Nevada. To prove his point, Musk said Nevada didn’t even offer the most valuable package.

Instead, he cited the state’s agility and ability to “get things done” as reasons behind the company’s choice.

“This factory is very important for the future of Tesla, because without it we can’t do the mass market car,” said Musk.

The stakes are also high for Nevada, a recession-rattled state where manufacturers employ only 3.4 percent of the workforce, according to trade organization National Association of Manufacturers.

For Tesla Motors, the success of its mass-market third-generation car hinges largely on the swift completion of its lithium-ion battery factory, which will have the capacity to produce 50 gigawatt hours of battery packs a year. By 2020, Tesla estimates the facility will be able to make enough batteries to supply 500,000 vehicles a year.

Panasonic, its existing battery cell supplier, said in August it will help build the plant without providing details on the amount it would contribute.