No Unions, State Money: Tesla's Winning Formula For Nevada Gigafactory

Elon Musk TeslaAP Photo/Paul SakumaWhat happens in Nevada is good for Tesla.

As we anticipated on Wednesday, Nevada confirmed on Thursday that the state will be the site of the $US5-billion “Gigafactory” battery manufacturing facility that Tesla has been talking about building for a while now.

But as CNBC’s Phil LeBeau reported — both from the Nevada state house in Carson City and later in the middle of the Nevada desert near Reno (Somebody needs to hand Phil a bottle of water!) — the crux of the deal has yet to be approved by the state legislature: the incentive package.

Tesla wants $US500 million from Nevada to ease the pain of building a $US5-billion Gigafactory

LeBeau noted what’s already been widely discussed: Tesla is looking for $US500 million in return for building the Gigafactory in Nevada.

LeBeau also pointed out that Nevada is a “right to work” state. This means that, like the southern U.S. states that have seen an influx of foreign carmakers over the past few decades, the workers at manufacturing plants in Nevada are resistant to unionization. The United Auto Workers (UAW) recently tried to organise at a Volkswagen plant in Tennessee, and despite the tacit support of VW (Germany has a strong union presence in its auto sector), the effort failed.

Unionization is unlikely to be an issue for Tesla in Nevada

Unionization isn’t impossible in right-to-work states, it’s just more difficult and, as in Tennessee, generally not supported by a state’s conservative politicians. As a result, auto factories have proliferated there, leading industry observers to dub the region “Detroit South.”

At Tesla’s Fremont, Calif. factory, where the Model S sedan is built, the workers are also non-union, even though California is not a right-to-work state. Unionization efforts by the UAW have also failed there.

Tesla factory productionREUTERS/Noah BergerTesla’s Fremont factory is non-union.

And obviously, the Gigafactory will be building lithium-ion batteries, not electric cars. However, the UAW could easily define electric vehicle’s batteries as parts, given that they are the most important and expensive components of an EV.

So by choosing Nevada as the Gigafactory site, Tesla and CEO Elon Musk continued a pair of themes for the company: it doesn’t have to worry about unions; and it’s going to be tapping taxpayer funds in some way to bolster its operations.

Tesla was about to survive in 2009-2010 because it got loan guarantees from the Department of Energy. And given that Musk prefers to pitch Tesla as a technology company, rather than a extension of the auto industry as defined General Motors, Ford, and Chrysler (whose Midwestern plants are all unionized), it doesn’t make sense for the UAW to be in the picture. Silicon Valley and unions: two concepts that are very far apart.

Tesla gigafactoryTesla MotorsTesla’s plan for the $US5-billion Gigafactory.

The bottom line is that over the past month or so, Nevada has looked like the clear front-runner to get the Gigafactory, even though California did its best to push itself back into the conversation (and then abruptly dropped out, as its legislature went home last month before voting on a bill that would have enabled the state to offer incentives to Tesla).

And now we can see more clearly why Nevada has put together the winning bid.

Here’s LeBeau’s parched and dusty report from outside Reno:

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