Inside Elon Musk's $1.4B score
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Instead, Tesla used their outsize market influence to shake down the state for as much cash as possible. In the absence of these payoffs, states would have to compete on 'business-friendliness' by changing their tax structure or building permit process - improvements which would be good for all businesses. Instead we have one set of rules for those at the top of the pyramid and one set for everyone else.
And perhaps the extra expense and inefficiency of overseas manufacturing would've stopped the electric car industry from getting off the ground at all.
Making money is not the only reason to do something.
Yes. The state should not be in the business of paying private organizations to provide for the public good; it should perform the necessary functions itself.
Also, the state is in the business of managing externalities, especially those for which market information is lacking.
Public subsidies of private businesses can sometimes make a lot of sense from this perspective as they are in effect a form of investment by the actor that is able to take the biggest risks, which given the market runs on historic data, is very useful when someone wants to try something that is particularly novel.
Now it can be a bad investment, either by not being useful, or by driving out other useful things, but this is true of all investment decisions, whether or not it is the state making the investment.
Another thing is that other than possibly in communist states, I am not sure that any country has cut private business entirely out of public projects, and they only did it by banning private business entirely, so I was wondering what evidence there is that your suggestion is a good idea economically.
Having lived on both sides of this I've concluded the EU model is the right one. The one real exception becomes when an aggressive external party tries to use state backed product dumping to displace all other existing market participants before jacking the price back up again. In those cases you will need punitive tariffs on imports, but that should be the exception and not the rule.
> A casual reader of stories about the Gigafactory might assume that the $1.3 billion number in the headlines means that the state wrote Tesla a huge check for that amount. In fact, Tesla has received no money from the state at all.
>Then Musk talked to Sandoval about two weeks later, and the deal was suddenly off. Musk had changed his demands. He now wanted a staggering $500 million in cash upfront instead of some of the tax abatements. This was simply impossible for Nevada. The state didn’t have that kind of money—its entire budget is just $6.5 billion—and it wasn’t about to write a half-billion-dollar check.
>For a second time, Nevada’s team braced itself and said no. “The conversations got pretty darn tense,” says Hill. “Tesla was not happy.”
>The company made its pique apparent: On July 23 it shut down the grading work outside Reno, abruptly sending 240 construction workers home. O’Connell explains Tesla’s attitude this way: “Okay, fine, if it’s not going to work in Nevada, we’ll take our shovel and go somewhere else.”
brunelleschi protested but eventually agreed to allow ghiberti to be on site and help with the work, and though brunelleschi laid some of the most dangerous bricks himself, ghiberti was said to have spent his time drinking and lazing off, this infuriated brunelleschi who knew ghiberti was unable to do the work necessary but would eventually share in the credit, and after some time brunelleschi fell ill and tended his bed, ghiberti was then forced to take lead on the project but being as he was unqualified to lead the project the project began to fall apart
before it was completely scrapped the city fired ghiberti and the next day brunelleschi's illness lifted, he returned to finish the job and the dome still stands to this day
"... but, if you have been to Nevada, you will notice that there is quite a lot of extra land with nobody on it. This is not in short supply."
Why would you expect otherwise? I have no training in economics or finance, but it seems to me that affecting such large markets is usually going to take huge amounts of capital. I'm not convinced it's always about artificial barriers to entry, but rather the natural barrier to entry: the economies of scale mean viable competition is expected to take some amount of capital to bootstrap. When the scale is global, it's probably going to require a lot of capital.
Now, if you just mean it's disappointing how challenging it seems to be for non-billionaires to obtain sufficient capital from banks, VCs, etc. to undertake such high risk/high reward ventures, you may be right in your disappointment.
http://www.fool.com/investing/general/2014/02/07/why-general...
Lower operating costs for the factory means lower manufacturing cost for the cars means greater sales and/or profitability, therefore, increased chances that Tesla succeeds in becoming a major global automotive force.
Very appropriate that this bet be made in Nevada.
It is irrational for states to compete for individual businesses, instead of competing with general good business rules. This is the way it is in the U.S nowadays. Big companies let states compete for their largest investors. When big companies, politicians and unions stand side by side you have every reason to worry. But pointing the finger at the big company is useless, because they are not under your control. It is the political side that is under democratic control, and should respond to the interests of the people. The company will to it's best to advance its own goals and interests.
As it happens, in Tesla's case, that goal is pretty decent. So I'm not that distraught in this particular case.
When companies can force states to bid in exchange for jobs, or to lower labour regulation/environmental restrictions, etc, it's a very dangerous slippery road.
However, even if you completely support local governance in the abstract, is there a limit past which you feel uncomfortable in terms of concessions to draw in jobs? For example, Ireland has structured its tax laws exactly in the way foreign corporations demand so EU based corps can avoid paying taxes. Should this be allowed?
I must've missed something, but where was "force" applied? Did Tesla threaten to sue Nevada (or Texas)? Did they send in teams of lawyers, threatening to shut the state down?
No. All that happened was a bit of aggressive negotiation with adult parties, who were more than willing to play the game. Nobody "forced" anybody to do anything.