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Tesla in Austin


mack_turtle
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word is that Tesla is going to build a factory east of Austin. the proposed site is just outside of 130 between 969 and Hwy 71. My brother is considering moving his family of five from Ohio to here if I could get a job there (he's some sort of manufacturing engineer).

explain it to me like I'm five: why do cities and counties offer incentives to corporations to move here? shouldn't those corporations be paying US for the privilege of operating in our region, with access to our infrastructure (if you can call it that) and our workforce?

 

Edited by mack_turtle
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Have you been to the run-down cities or towns in the northeast?  Of course not, why would you? Shitholes, some might call them. Those cities did a poor job of develping and bringing in new employment opportunities. Texas isn't making that mistake. 

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I attended Ball State University in Muncie, Indiana. yeah, that place looks rough. obviously industry left that place high and dry. still, it feels like we taxpayers are on the hook for a company to make billions of dollars. I see how we'd want to create incentives, but it sounds like we're basically paying them to make money here. something seems off about the degree to which we're willing to lick boots of an industry. Amazon or Tesla looks our way and we can't drop out pants and bend over fast enough for them.

Edited by mack_turtle
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It is a double edged sword.

The theory is that if Tesla moves its factory here that it will draw other suppliers and ecosystem partners here. The big factory is the loss leader and all of the supporting businesses overcompensate for those incentives.

However, in practice, few are able to actually connect the dots after the fact. All of these cities are bidding to get the business so they have to offer something up. No difference than with sports teams. This is like convincing your wife that you need to spend $7000 on a new bike and that will give you better mental health. You see the $7K go out the door, but it is hard to quantify the benefits.

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I've never agreed with the theory.

I get the sports team thing. The city is paying to have an amenity. It's like paying to build a Zilker Park. A sports team is a unique thing that thousands of people will enjoy. But I've always contended that the free market would prevail over a government entity stepping in. A team owner is going to have to find somewhere to put his team. If no city paid him to come he would eventually go somewhere on his own dime.

The tax breaks for industry and business are given to bring economic activity and jobs. But they also bring more people that the city ends up footing the bill for more schools, roads, police, and other services to handle the increased population while actually bringing in less taxes because that plot of land is now off the tax rolls for years. 

There was a stink about the tax deal The Domain is getting. Again, that retail developer is going to build somewhere regardless of tax breaks. I said at the time there's no difference in the city helping build that big commercial space as it would be to give a bunch of small businesses tax breaks. Those supposedly desirable highly skilled workers that come with these kind of deals are not moving to Austin to work at Dick's Sporting Goods. 

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It  seems to work like this in today's economy: Privatize profit and socialize loss.

I certainly would like to see the actual ROI on these subsidies.  Any reasonable person should question the logic of throwing large sums of taxpayer dollars to bribe multi-billion industries to come here or expand their footprint. They're coming to places like Austin because thats where the talent is. Prior to this, I lived in a state that had nothing but brain-drain to offer and businesses we fleeing no matter how many bribes were offered. 

Take care of your people, grow the talent and infrastructure, and they will come.

 

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I believe that that traditional wisdom behind providing tax breaks to companies to locate to your area works like this:

1. Company locates to your area but they aren't paying any taxes because you gave them a big package.

2. Every job that company creates brings in a worker who DOES pay taxes.

3. That worker brings in their family who also pays taxes.

The math should work out that the region makes more money than they spent.  The reality is that you can't really measure it and the politicians that made the decisions don't expect to be in power by the time it could be measured anyway.  

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2 hours ago, The Tip said:

I've never agreed with the theory.

 

The theory is sound, it's how it plays out in practice that is what you don't like. 

I'm not a fan of giving incentives either, but having come from Chicago, a place where businesses leave, the cost of not attracting new businesses is quite painful. It's one thing to say you have to pay higher taxes because some company came in and got an incentive. It's another to say you have to pay higher taxes because a company left (or went under).

If I have to pay taxes to cover one of those two situations I'd far prefer the former over the latter. 

The reality is that any growing, healthy city is a better place to live in. And here's the complete list of all the cities that are growing and attacking business yet offering zero incentives:

 

Basically it is the cost of progress. I'm sure my dad is happy that he is not paying taxes to support these companies. Also, the house I sold in Chicago for $149K almost 30 years ago now probably sells for around $250K. The money that I parlayed in that sale has gone up a minimum of 4X from when I bought here. There is an implicit price and you can't look at this stuff in a vacuum.

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Always be skeptical. The bottom line is you are screwed either way.

When people talk about how "it didn't used to be like this" they are not complaining about how things are, they are complaining about how visible things are. We have way more transparency into the inner workings of government, business, etc. than ever before.

Shit hasn't changed. What we know about it has changed.

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33 minutes ago, AustinBike said:

Always be skeptical. The bottom line is you are screwed either way.

When people talk about how "it didn't used to be like this" they are not complaining about how things are, they are complaining about how visible things are. We have way more transparency into the inner workings of government, business, etc. than ever before.

Shit hasn't changed. What we know about it has changed.

Be skeptical for sure. You have to ask who this benefits. The many or the few, and at what cost? 

It has always been there, but has gotten more blatant and we've become more cynical. The corrupt doesn't bother to hide their misdeeds because they will pay little if any consequence for them.

Edited by ATXZJ
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On 6/23/2020 at 10:06 AM, mack_turtle said:

word is that Tesla is going to build a factory east of Austin. the proposed site is just outside of 130 between 969 and Hwy 71. My brother is considering moving his family of five from Ohio to here if I could get a job there (he's some sort of manufacturing engineer).

explain it to me like I'm five: why do cities and counties offer incentives to corporations to move here? shouldn't those corporations be paying US for the privilege of operating in our region, with access to our infrastructure (if you can call it that) and our workforce?

 

Let's say Company A wants to bring 1000 high paying jobs to a city. The will offer a tax break to the corporation because the income from those 1000 highly paid folks(and their families) will contribute more to the local economy than the loss of corporate tax revenue. In addition it will attract other places that want to be associated with these corporations(e.g. Amazon or Tesla). These companies make the city more attractive as a whole and improves it.

There are downsides of course(there always are) but this is one area where I'm okay with giving the tax breaks. Usually, there is a stipulation where the amount of tax breaks is directly related to the number of jobs and the pay level of those jobs. I used to work at Schwab and that was the case when the moved 900 jobs to Austin from San Francisco. The city gave a tax break but Schwab was required to create a certain number of jobs at a certain pay level.

That's the idea behind it and I'm 100% happy with giving corporate tax breaks with stipulations for job creation and pay levels. 

Edited by quixoft
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3 minutes ago, mack_turtle said:

that's the idea. makes sense. the question is: how much is fair and when is the company taking advantage (and being given that advantage by elected officials)?

There is definitely a gray area there and room for corruption. That's where local voters come in and kick out the offenders if it happens. I would love to boot out mayor Adler and the entire Austin City Council but I live in Round Rock now. 🙂

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8 hours ago, quixoft said:

That's the idea behind it and I'm 100% happy with giving corporate tax breaks with stipulations for job creation and pay levels. 

I'm behind it as well, but only if there is transparency and auditability. Just look at what happened with Foxconn in Wisconsin:

https://www.theverge.com/2020/4/12/21217060/foxconn-wisconsin-innovation-centers-empty-buildings

I've been in their facilities in Shenzhen and Taiwan (Hon Hai) and they were pretty impressive, they're a machine. The fact that this thing fell apart tells me that this was not about manufacturing but about capturing incentives.

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Ohio is currently suing GM to the tune of $60M due to the closure of the Lordstown plant.   They had several incentives/agreements, some going to 2028 and some going to the 2040's.  It will be interesting how that unfolds.  Not enough of this happens.

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How the Austin gigafactory may factor into Tesla's battery cell manufacturing plans

Austin Business Journal

Nov. 8, 2020

Paper trail, government official confirm plans in works

A potential battery cell manufacturing unit at Tesla's Austin gigafactory could be part of a wider strategic move for the company, sources said.

Tesla (Nasdaq: TSLA) announced in September plans to create its own 4680 cells — the name refers to its dimensions, in millimeters — that make up the battery packs used in its cars. Analysts have said Tesla producing its own cells could significantly reduce its car production costs and vertically integrate the company.

CEO Elon Musk has not confirmed whether a cell manufacturing unit will be part of its $1.1 billion factory in far East Austin. However, documents filed with the Texas Commission on Environmental Quality reference plans for cell production, including an air quality analysis and a permit-by-rule registration. TCEQ spokesman Brian McGovern confirmed to Austin Business Journal that the filings from Tesla indicate it is "planning to manufacture cells."

Tesla has repeatedly ignored requests for comment on its plans for the factory and local representatives for the company declined to comment on battery production.

But the regulatory paper trail raises a major question, for Tesla as well as the business community in Central Texas that it is suddenly a part of: How will the Austin plant fit into the company's effort to create its own battery cells?

Kevin Tynan, senior automotive analyst with Bloomberg Intelligence, said it's likely that Tesla will hold off on ramping up its cell manufacturing unit in Austin until it sees enough demand, whether within its own operations or from competitors.

“What it looks like from what I've seen of the building plans and the permits … is the cell manufacturing isn't the first stage,” he said. “I think they would more grow into that as they get the Cybertruck or Model Y production up, and they can see that the demand is legitimately there to have that battery or cell manufacturing facility."

Tesla, the most valuable carmaker in the world, has set a goal to deliver at least 500,000 vehicles this year, according to its third-quarter earnings update. Its facilities in Fremont, California, and Shanghai, China, are capable of producing up to 840,000 cars per year, according to the update.

Tesla has purchased its batteries for years from Panasonic, which creates the cells in the carmaker's Nevada gigafactory. In an SEC filing from February, Tesla officials did not list any contractural obligations past 2024, which are noted as "primarily relating to the purchase of lithium-ion cells produced by Panasonic at Gigafactory Nevada." Tynan said this could be when Tesla plans to have its own cell production up and running, though demand remains a crucial factor.

So, what does that mean for Tesla's relationship with Panasonic? Officials at the Japanese conglomerate announced last month that they were already working with Tesla on the 4680 cells at the Nevada plant, according to a report from Reuters.

“We started working on it immediately after Tesla’s Battery Day (in September) and are also preparing to set up a prototype production line in parallel,” Panasonic Chief Financial Officer Hirokazu Umeda said, according to Reuters. “We have considerable know-how for that battery."

Tynan suspects Panasonic's role in Tesla's operations will become less prominent over the next few years, and as other automakers move into the electric vehicle space, they'll look to Panasonic for expertise.

It's also possible, with the scope of the Austin gigafactory, it could in time become Tesla's primary cell manufacturing site, supplying its West Coast operations, he said. Or, Tesla could become the go-to battery supplier for other car manufacturers as they ramp up electric vehicle production.

"That would be one way to increase the capacity utilization and the number cells you manufacture. ... They don't all have to be for Tesla vehicles, that they could be for competitors as well," he said. "So that would open up another revenue stream, too."

Electric vehicle sales were about 1.8% of the automotive market in 2019, according to a report from Edison Electric Institute, an association of U.S. investor-owned electric companies. That's because there hasn't been enough proven profitability to entice established carmakers to fully jump into the game, Tynan said.

"This is a race that Tesla is running by itself and people are pointing at them and saying, 'Look, they're dominating the race.' Which is true — it's just that nobody else is running in the race," he said.

Tesla reported Oct. 21 its best quarterly revenue, net income and car production figures ever. Musk also said in the company's third-quarter earnings call that for the three months that ended Sept. 30, the company had record cashflow of $1.4 billion.

Central Texas is becoming a beacon for electric vehicle technology. Round Rock-based Ayro Inc. announced in September a deal with California-based Karma Automotive LLC to produce more than 20,000 “special-purpose” electric vehicles by the end of 2023. Hyliion went public in October with its hybrid power train for tractor-trailers and is trying to rapidly increase production at its factory in Cedar Park, while also aiming to demo an all-electric power train in 2021.

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