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California dangles another $15 million carrot to Tesla

Electric Car Maker Tesla Opens Store In Miami MallElectric Car Maker Tesla Opens Store In Miami Mall
Tesla's logo.Photograph by Joe Raedle—Getty Images

Tesla Motors, the luxury all-electric automaker that operates a number of factories and offices throughout California, could receive another $15 million tax credit under a proposal by Gov. Jerry Brown’s business and economic development agency GO-Biz.

The California Competes Tax Credit Committee will consider GO-Biz’s proposal to give tax credits totaling $49.5 million to 63 businesses including online video game developer Riot Games, pharmaceutical developer Ajinomoto Althea Inc., and footwear and apparel designer Sketchers, among others.

The vast majority of companies are on tap to receive tax credits valued under $1 million. Palo Alto-based Tesla Motors(TSLA) stands to snag tax credits five times higher than those allotted to the next largest recipient.

The catch? The companies must expand in California and hire more than 4,400 workers by 2019. The $15 million tax credit agreement would allow Tesla to offset taxes to grow its operations in California, purchase property, and buy equipment for manufacturing as well as research and development. Under the tax credit agreement, Tesla must pay workers a cumulative average salary of $55,000 and maintain those milestones for at least three years.

The California Competes Tax Credit is an income tax credit available to businesses that want to locate in state or stay to grow existing operations. The tax credit agreements are negotiated by GO-Biz and approved by a committee that includes the state treasurer, director of the department of finance, director of GO-Biz, and one appointee each by the Speaker of the Assembly and Senate Committee on Rules. The committee will consider all of the tax credit proposals at its June 18 meeting.

 

 

A year ago, California lost out to Nevada in the battle for Tesla’s $5 billion lithium-ion battery factory. Under that deal, Tesla CEO Elon Musk successfully negotiated a tax incentive package worth $1.4 billion. California doesn’t want to lose again—even if critics argue that corporate giveaways rarely deliver the promised benefits.

The $15 million tax credit is a small drop in a multi-billion bucket of government support that Tesla— and Musk’s other companies SpaceX and SolarCity— receives on a national scale. A report released last month by the Los Angeles Times determined that together, Tesla, SpaceX, and SolarCity have benefited from an estimated $4.9 billion in government support. The figure includes a mishmash of government incentives, including grants, tax breaks, factory construction, discounted loans, environmental credits that Tesla can sell, as well as rebates to buyers of solar panels and electric cars.

Tesla does invest heavily in California. It employs nearly 6,500 workers at its headquarters in Palo Alto, primary car and battery factory in Fremont, design studio in Hawthorne, and a specialized production plant in Lathrop, as well as a dozen service centers and 19 storefronts scattered throughout the state. Many of these jobs are in historically well-paid fields such as engineering, IT, design and production. Tesla’s investment in California talent is certainly paying off. Now California needs to see if its investment in Tesla will produce similar results.