Tesla Motors Inc (TSLA)’s Gigafactory Might Offer Local Benefits But Not To The Nation As A Whole

Nevada has been officially announced as the location for Tesla Motors Inc (NASDAQ:TSLA)’s much sought after Gigafactory. The state won over competitors such as Texas and Arizona, luring the electric car maker with over $1.3 billion in tax breaks. The battery factory is expected to create around 6,500 jobs once it starts production in full capacity and Nevada Governor Brian Sandoval expected that the state will enjoy economic benefits of around $100 billion spread out over two decades. Skeptics complained that these numbers are vastly exaggerated citing the high cost per job created. Adam Ozimek, economist at Moody’s Analytics felt that this was an erroneous interpretation of the issue and stated his views in his column ‘Modeled Behavior’ in Forbes.

Ozimek noted that economic benefits in the form of tax incentives played a huge role in Tesla Motors Inc (NASDAQ:TSLA)’s selection of Nevada over other competitors who offered equally good access to cheap labor and other resources. “I also remain unconvinced that these companies aren’t actually being lured by these incentives,” he said. If the cost and quality of workforce and other such fundamental elements were the only deciding factors in the selection process, there will be no positive bias as the offer from every state would be exactly the same as the next one.

Ozimek argued that the problem lies with the fact that though the state of Nevada will benefit from playing host to the multi-billion dollar battery factory, it will not translate into an economic benefit for the country taken as a whole. Tax incentives for large companies such as Tesla Motors Inc (NASDAQ:TSLA) offered by states like Nevada might result in an increase in the amount of jobs created in that particular state. What this means that some other state is losing out on job creation. “Jobs gained somewhere are lost somewhere else, and there isn’t any efficiency gained in the process,” he explained. When we look at the bigger picture, there is no net job creation but only a reallocation of jobs to the state which offers the better deal.

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