Tesla going full speed in developing Nevada factory, but auditing lags

Cathleen Allison / AP

Gov. Brian Sandoval, Steve Hill, executive director of the governor’s office of economic development, and Tesla Motors CEO Elon Musk answer media questions about an announced car battery plant Thursday, Sept. 4, 2014, at the Capitol in Carson City.

Tesla is well ahead of schedule in getting production up to speed at its Nevada manufacturing plant.

Its progress in fulfilling auditing requirements for state tax incentives, however, is a different story.

There was no fanfare and no public announcement when Tesla started producing batteries this fall at its 5.5 million-square-foot factory near Reno. But it was a development that placed the factory, originally expected to start production in 2017, on a significantly accelerated timeline.

Tesla Factory Announcement

Tesla Motors CEO Elon Musk and Gov. Brian Sandoval shake hands after a press conference at the Capitol in Carson City on Thursday, Sept. 4, 2014, in which Nevada was announced as the new site for a $5 billion car battery gigafactory. Launch slideshow »

Tesla, Elon Musk’s electric car and energy company, broke ground on its Tesla Gigafactory in June 2014. Following a special session of the Nevada Legislature in September of that year, Tesla received more than $1.3 billion in tax incentives.

With minor exceptions, the tax breaks to Tesla will provide the structure for the $335 million in incentives to be considered next week in a special legislative session for Faraday Future, a Chinese-backed electric car company that plans to build a $1 billion North Las Vegas factory for car assembly.

From a production and economic standpoint, Tesla’s factory appears to be on a path to success.

The company and its partner Panasonic have invested $238 million in the factory as of the third quarter of this year, and an average of 583 construction workers are employed there each week, according to a state economic development report. Nearly 75 percent of the workers are residents of Nevada, far above the 50 percent threshold that Tesla is required to meet.

Tesla Energy, the division working on a battery that stores solar energy to power homes during the evening or during an outage, moved production from its California factory to the Nevada facility in the early part of the fourth quarter, according to a shareholder letter. A spokesperson from Tesla confirmed last month that Powerwall batteries are being manufactured at the factory.

“They’re producing,” Gov. Brian Sandoval said, recapping a recent visit to the factory at a meeting for the Governor’s Office of Economic Development. “They showed me a picture of the first battery storage system that is going to be exported from the state of Nevada.”

The Tesla website said the batteries will be delivered this year, and there already is demand. A utility in Vermont is expected to receive 500 Powerwalls for its customers in early 2016. After the home storage device was announced, it drew nearly 40,000 reservations one week later.

But despite exceeding expectations in production, the factory is behind in meeting transparency requirements state lawmakers mandated during the special session. Tesla was required to submit an annual compliance audit by Aug. 1., according to Brad Mamer, GOED’s business development director, who has been overseeing the project. After the August deadline, state economic development officials gave Tesla a second extension until Oct. 1, a deadline the company missed. Officials extended the deadline again, and no date is scheduled for the audit's release.

“Given that this is the first audit of its kind, we think it makes sense that the time is taken to make sure it is done correctly and as requested by the office and Legislature,” GOED spokeswoman Jennifer Cooper said in a statement.

The audit will provide an independent validation of Tesla’s property investments and of the total number of construction workers at the site, rather than the averages it has been reporting on GOED’s quarterly reports. Until the audit is complete, Tesla is ineligible to receive a tax credit — calculated by the number of employees it hires — that’s estimated to be worth $10 million.

Tesla’s compliance audit also is delaying a GOED annual report on the project. It was due Oct. 1 and GOED plans to release it retroactively, 30 days after Tesla’s audit. That report will provide the exact dollar amounts of how much tax revenue was waived for Tesla during the last year.

The delay comes at a delicate time for state officials, as Sandoval has called a special session to finalize an agreement to bring Faraday to North Las Vegas. The Faraday incentive package, which state officials said will build upon legislation passed for Tesla, is expected to have the same transparency requirements — an annual audit and quarterly reports.

Sen. Tick Segerblom, D-Las Vegas, said on Wednesday that the first question legislators should ask is whether the deadline extension was legitimate. If not, he said the issue should be raised when legislators consider incentives for Faraday during the special session next week.

“It means we should probably try to tighten up (the audit) requirement,” Segerblom said.

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