What Tesla’s choosing of Nevada over California really means

150 150 Lenny Mendonca

(image: Wikimedia)

Tesla’s decision to build its $5 billion gigafactory in Reno, Nev. is disappointing – but not the loss decried by its harshest critics.

It is impossible from the outside to know the details of what was offered, promised, and conditioned. To be certain, California’s leaders were deeply engaged and willing to make a deal if it penciled out for California.

From this side of the border, negotiators say that what Tesla wanted did not make sense for California. The winning state was expected to hand over as much as $500 million in tax incentives.  According to Forbes, Nevada gave Tesla $1.25 billion in incentives, nearly $200,000 a job.

While the desert dust settles, one thing is clear: Tesla made a great deal for its shareholders, many of whom are in the corporation’s home state of California.

And before the disappointment fades, it is important to call out what California gained – or should have gained – from the experience.

The first is that California’s leadership — Governor Brown, his team and legislative leaders – worked together to craft the best possible deal to land the project. By engaging, they sent a clear message that California can and will compete for production jobs.

State leaders also gained more insight on how these decisions are made – the mix of infrastructure and workforce considerations, regulation and tax considerations that drive when and where employers make investments that generate jobs.

The reality is the vast majority of jobs are created by rapidly growing small and medium-sized businesses. California has thousands of those firms that are making hundreds of decisions every month – applying the same general consideration to their circumstances.

Firms with fewer than 500 employees make up 48 percent of the workforce (and 99.7 percent of all firms), according to the Small Business Administration. Companies with fewer than 50 workers employ nearly one-third of the workforce.

Those employers don’t make the headlines – nor do they garner the attention of governors. But if California wants to keep or attract those jobs, it will need to accelerate its renewed interest in creating the conditions that attract those investments.

The State must do what it did with Tesla, but it also must prioritize the system changes that will influence the hundreds of business decisions that will not come to their attention.

The California Economic Summit – regional civic and business leaders working with local and state officials – has been identifying the specific actions that will result in adequate infrastructure, a trained workforce and efficient regulations.

In the last three years, state leaders have come to embrace the need for public-private cooperation to align state policies to support California’s distinct regional economies.

In just the last 12 months, the Governor and Legislature have prioritized funding for career technical education, sharpened their pencils on the new water bond proposal and – pending the Governor’s signature – will have created a new infrastructure financing tool for local governments.

Much more work needs to be done – and next year’s short list of accomplishments must include systematic reductions in the abuse of CEQA and greater certainty and transparency in regulations writ large.

Tesla started small and started here. From an economic ecosystem standpoint, putting a battery factory in Reno is not bad for California. But creating the conditions for the next investment to be in California would be even better.  And by doing so, California will have competitive advantages that tax breaks alone cannot always match – while simultaneously helping the thousands of smaller employers without Tesla’s star power.

I was born and raised in the Central Valley, where you learn young not to “give away the farm.” California didn’t give away the farm with Tesla. But it is going to take some hard work and long days to make and keep all parts of California economically competitive.


Lenny Mendonca

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