The eyes of Tesla Motors are on Texas as a location for its gigafactory. And the state is placing the highest possible priority on landing the $5 billion investment, with Gov. Rick Perry personally leading the negotiations, according to the San Antonio Express-News.
But before Tesla CEO Elon Musk makes up his mind, Texas may have to jump over some hurdles in order to beat out Nevada, New Mexico and Arizona for the battery factory, which is expected to create 6,500 jobs. Specifically, it may need to convince Texas’ auto dealers’ to drop their opposition to allowing Tesla to deploy its business model in the Lone Star State.
As currently written, Texas law prevents new cars from being sold or serviced by anyone except auto dealers. Musk appeared before a state house committee last year in an effort to convince the legislature to change that law and allow Tesla to sell direct to consumers, to no avail. (Read the case that Tesla made here.)
Last week, Bill Wolters, the head of the Texas Auto Dealers Association, said that he would love to see the state land the plant, but didn’t see a need for a quid pro quo.
“We would not change the law, because the franchise laws of this state protect consumers statewide,” Wolters told CNBC. “We have more dealers in Texas over 75 years old than we have manufacturers over 75 years old. Dealers are eternal in our state.”
Wolters said Tesla should want to come to Texas because of the state’s appeal, not because it could land incentives and tax abatement and changes in state law.
Certainly, Texas is the most powerful manufacturing state among the four that are competing for the plant. Thanks to oil, natural gas, and a variety of other businesses, manufacturing comprises 15 percent of Texas’ gross domestic product, according to figures from the state. Eight percent of Texans get their employment from manufacturing, and Texas estimates that manufacturing contributed $211 billion in GDP last year.
Texas also is used to dealing with automobile manufacturers. Toyota has one of its North American manufacturing plants outside San Antonio while General Motors just expanded its truck plant in Arlington, near Dallas.
According to the San Antonio paper, Perry is talking directly with Tesla (the state has declined comment on the negotiations). “They made it clear to us they want to go through state-level entities, then screen down to the local level,” said Mario Hernandez, president of the San Antonio Economic Development Foundation, said of the governor’s office, according to the News-Express. “The governor has signed a nondisclosure agreement [with Tesla], so the information they revealed is very limited at this point.”
Besides the state’s sprawling economy, Texas can boast another advantage in competing for the plant. It has no actual corporate income tax, but a gross receipts tax that works out to about 0.5 percent to 1 percent, depending on the company and industry. Nevada also does not have a corporate income tax, according to the Tax Foundation, a tax research organization which tracks state tax rates. New Mexico’s rate ranges between 4.8 percent and 7.6 percent, depending on a company’s revenue, while the Arizona corporate tax rate is set to drop to 6.5 percent this year.
Given the size of this industrial prize, Tesla will be in a position to ask states for a number of features, from location and site preparation to education and training money. The gigfactory could easily take its place with GM’s Saturn plant and the foreign car plants built across the South in the economic development hall of fame.