Is Tesla’s Nevada “Gigafactory” a dud?

In 2014, New Mexico was gripped by “Tesla” fever. The talk centered on the possibility that the electric vehicle company was considering locating its “gigafactory” to produce batteries for its cars right here in New Mexico. Needless to say, that didn’t happen. They went to Nevada instead.

While the Rio Grande Foundation supported efforts to lure Tesla here, most of our attention was focused on the zero income tax, “right to work,” and zero corporate income tax laws that make Nevada more attractive than New Mexico when it comes to business. We were (and remain) leery of massive incentives for a single business. Nevada offered those to the tune of $1.25 billion, a figure that was quite high given that Nevada was likely better-suited than any other state as a site for the factory to begin with.

Of course we have also stated our concerns at the time about Tesla’s business model producing high-end electric vehicles. With oil having dropped from then- $110/barrel to $30/barrel today, Tesla’s mass-market appeal is further limited.

Now, some analysts (including this one at Seeking Alpha) are saying that the gigafactory is a “dud” for Nevada. Salient facts from the Seeking Alpha article include:

• The 2014 bond proceeds that were to be spent on the Gigafactory are long gone.

• But Tesla’s need for cash has continued. Only 15 months after raising the bond funds, Tesla pledged the bulk of its assets to secure a $500 million collateralized loan facility with a consortium of banks.

• Two months after that, Tesla raised an additional $738 million of capital by issuing additional stock.

• Tesla has not come close to its own estimate that it would complete the Gigafactory structure by the end of 2015.

• Tesla has spent about $300 million on the Gigafactory – far less than Nevada estimated would have been spent by now.

• Tesla’s only announced “partners” at the Gigafactory are Panasonic and two fledgling mining companies with contingent contracts for the supply of lithium-hydroxide.

• Tesla recently issued, at page 22 of its November 10Q filing, a caution that “we may have difficulty signing up additional partners.” (This was added to existing disclosures that “the cost of building and operating the Gigafactory could exceed our current expectations” and “the Gigafactory may take longer to bring online than we anticipate.”)

• As of September 30, 2015, Tesla had 50 employees at the Gigafactory and Panasonic had 32. During the third quarter, there were (on average) another 847 construction workers on site. Based on drone flyovers (which unfortunately are removed from the web soon after they appear), it appears that many, if not most, of the construction workers have now left the Gigafactory site.