Tesla Motors, Inc. (TSLA) has provided justification for the tax incentives of $1.3 billion that it will receive over a 20-year period from the Nevada government for the construction of its Gigafactory. The company will not receive any incentives in terms of cash. The Government will only provide the land for the factory and its contribution in the $5 billion project will be only 5% in the 5-year period. In the 20-year period, in which the total cost of the factory is expected to be $100 billion, the state’s contribution will be only 1%.
Moreover, all the incentives are based on performance. Thus, if Tesla fails to achieve the goals, the company itself will face the consequences.
Further, Tesla expects the construction of the Gigafactory in Nevada to be beneficial for the people at large. The Gigafactory will be the largest and most advanced battery factory globally with a large number of direct and indirect jobs. It will continue to economically benefit the people of Nevada for a longer time than the 20-year incentive period. Thus, the incentive provided is well justified, per the company.
In Sep 2014, Tesla announced that it will build its $5 billion Gigafactory in Nevada to produce the batteries in collaboration with various partners. The chosen site is the Reno Tahoe Industrial Center, which is about 15 miles east of Sparks, a Reno suburb in Nevada. Tesla expects to finish the factory by 2017.
When the incentive proposal was passed in the Nevada legislature, it was approved by members of both the Senate and the House. After the bill was passed, Moody’s assigned the deal as credit positive for both the Reno area and Nevada. However, the Government was facing criticism for the large incentives offered, which prompted Tesla’s public justification.
Currently, Tesla carries a Zacks Rank #5 (Strong Sell). Better-ranked automobile stocks worth considering include Gentex Corp. (GNTX), STRATTEC Security Corporation (STRT) and Meritor, Inc. (MTOR). Both Gentex and STRATTEC Security sport a Zacks Rank #1 (Strong Buy), while Meritor carries a Zacks Rank #2 (Buy).
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