Tesla Gigafactory Heading To Northern Nevada; Why Reno Makes Sense

Michael McGonagle isn’t surprised that Tesla Motors Inc. (NASDAQ:TSLA) has picked a site 17 miles east of Reno, Nevada, to be the location of its massive Gigafactory battery plant. The local architect had been offering up a regular rundown of local “Tesla speculation” as far back as February on his real estate development blog, and much of what he has said has turned out to be accurate. So what’s the climate in Reno now that the news is official?

“It’s getting a big thumbs-up here. Everyone thinks that at 4 p.m. today their property values will go up 10 percent,” McGonagle told International Business Times by phone on Thursday hours ahead of the afternoon press conference in Carson City where Gov. Brian Sandoval announced a $1.25 billion tax-break package over 20 years. It's the largest deal of its kind in state history, significantly bigger than the $89 million Nevada offered Apple Inc. (NASDAQ:AAPL) in 2012 to build an iCloud data storage center near Reno.

The deal includes $725 million in tax abatements over 20 years and $195 million in transferable tax credits. The state would also be expected to allow Tesla to sell cars directly from its showrooms; most states prohibit auto manufacturers from selling directly to the public.

“Tesla will build the world’s largest and most advanced battery factory in Nevada which means nearly $100 billion in economic impact to the Silver State over the next 20 years,” Sandoval said at a press conference in Carson City.

The factory will supply Tesla with enough of the small battery cells used in its battery packs to produce 500,000 electric cars a year by 2020. The factory will directly employ 6,500 workers, but the state estimates a total gain of 22,000 jobs.
Tesla’s decision to move to the Reno area is part of a long line of West Coast firms that have made Northern Nevada a domestic destination for companies seeking low-tax, low-cost locations to do business. Microsoft Corp. (NASDAQ:MSFT) and Intuit Inc. (NASDAQ:INTU) have had operations there for years, taking advantage of the zero corporate tax rate and proximity to Silicon Valley, and more technology-oriented companies, from solar panel manufacturers to a miniature drone developer, have moved in recently.

McGonagle says 40 to 50 upscale homes have been recently scouted by Reno real estate brokers, presumably for the construction managers who will be moving to town to oversee the Gigafactory project. Local construction labor packed off for the oil fields of North Dakota and Texas in the wake of the 2007-09 Great Recession, and now Reno needs workers to come in for the 5 million square foot factory. Most of the workers will live in Reno, or in the nearby town of Sparks -- a nondescript suburb of strip malls and chain restaurants -- because there’s no housing at the Tahoe-Reno Industrial Center (TRIC) site, a cluster of undeveloped lots and industrial buildings just off Interstate 80.

“There’s been a lot of Tesla [Model S sedans] in town with California plates over the last three to six months,” Eric Raydon, who moved to Reno during the recession to renovate blighted Reno homes, told International Business Times by phone Thursday. “We’ve seen a big wave of millennials here. Some of them are Apple people, some are Tesla people and others are in the vanguard of companies moving in here.”

Part of that vanguard includes Ashima Devices, a manufacturer of miniature unmanned aerial aircraft, which announced last month it was moving its headquarters from Pasadena, Calif., to Reno. Last year, Apple Inc. (NASDAQ:AAPL) broke ground on its third data center near Reno to handle digital traffic for iTunes, iCloud and its App Store. Braeburn Capital, Apple’s asset management firm, is also in Reno, and Raydon says Wall Street firms have been scouting the area to set up data storage centers to complement their operations in New York and New Jersey.

Next week state lawmakers will host a special legislative session to hammer out their version of the incentive package. Most expect the deal to pass easily as the governor enjoys a sky high approval rating.

“We’re a little battle fatigued from the selection process,” said McGonagle. “At this point the legislature would offer their first born to get a deal through.”