Tesla’s CEO recently tweeted that the Giga Texas site will be a boon for the state, bringing in 10,000 new jobs—twice the original estimate. Here’s how experts say it could play out.
Now under construction: “Giga Texas,” Tesla’s auto-manufacturing site in Austin, Texas, scheduled to be completed by the end of 2021. And the $1.1 billion plant is expected to not only produce cars (and other auto-related products), but to produce jobs. As Elon Musk recently claimed on Twitter, Giga Texas will be a boon for the state, bringing in 10,000 new jobs—twice the original estimate that was projected.
This latest Gigafactory is Tesla’s fifth “Giga”—the others are in Nevada, New York, Germany and China—and together they produce electric vehicles, batteries and solar technologies for the EV automaker. Giga Texas is poised to manufacture Tesla Model Y and Model 3 cars, which it will deliver to the East Coast, as well as the Tesla Cybertruck and Tesla Semi. Tesla is also exploring producing its own lithium-ion battery cells, which it hopes to do by the end of 2021, and is currently deploying its first full-scale battery cell factories at the Gigafactories.
But while Musk is using public money, making big claims to help Texans, it is not clear that this will be the case—experts worry that history could repeat itself as in the case of SpaceX, and Tesla could fail to bring well-paying jobs to locals.
SEE: Elon Musk and the cult of Tesla: How a tech startup rattled the auto industry to its core (TechRepublic free PDF download)
Sitting on a 2,000-acre plot of land in Travis County, Texas, next to the Colorado River, Giga Texas will be an “ecological paradise” open to the public, Musk boasted, with “birds in the trees, butterflies, fish in the stream,” elevating the plant to an amusement-park level.
And, Giga Texas claims that it will be an asset to the local economy, as per the aforementioned new jobs. These include an IT manufacturing support technician, construction foreman, battery manufacturing engineering manager, architectural designer, an automation controls engineer, a senior software engineer and an ironworker —most of the positions, requiring simply a high school education.
It’s not difficult to see why Austin is an appealing location for Tesla. Austin already has a strong tech presence with Dell and the University of Texas and SXSW, for instance. So many tech companies have placed a footprint there that hilly area of the west side of Austin has been dubbed “Silicon Valley.” Meanwhile, Houston has had a reputation for aeronautics and space initiatives for decades. Especially with startups entering the scene, the state has become a “pretty strong competitor with Silicon Valley,” said Mike Ramsey, VP, analyst, automotive and smart mobility at Gartner. A crucial draw for high-tech companies: Texas is one of only nine states that doesn’t have a state income tax. California, on the other hand, has the highest state income tax rate in the country (the rate for top earners sits at 13.3%).
As Laura Huffman, president and CEO at the Austin Chamber of Commerce said, Tesla’s announcement is not a new thing in the area—”for decades Austin has steadily grown as a technology and innovation hub,” she said. Austin’s reputation for creativity and tech “mutually reinforce each other,” she added. “Tech and other companies are attracted to Austin for precisely this reason – they believe that this is the type of place where their business can best grow.”
And the “sheer size of the state” is another important factor, said Bryant Walker Smith, associate professor in the School of Law and the School of Engineering at the University of South Carolina. Smith wonders how much of Tesla’s current operations– including associated employees — will be moving. The answer is still unknown.
Musk’s history in Texas
Giga Texas is not Musk’s first foray into the Lone Star state. In 2014, SpaceX first broke ground on its launch site in Brownsville, the poorest metropolitan area in the nation.
And this March, Musk announced he would build a launch site and rocket manufacturing facility in Boca Chica, once a sleepy Texas town along the Gulf Coast, near the Mexico border. Shortly after the announcement, Musk tweeted: “Please consider moving to Starbase or greater Brownsville/South Padre area in Texas & encourage friends to do so! SpaceX’s hiring needs for engineers, technicians, builders & essential support personnel of all kinds are growing rapidly.” As TechRepublic previously reported, Starbase is what Musk has suggested renaming Boca Chica Village. Basically, Musk wants his own town. Earlier this year, he tweeted, “[c]reating the city of Starbase, Texas.” He then added: “From thence to Mars, And hence the Stars.”
There are other reasons for Tesla’s choice. Site selection can vary by industry, but automobile sites have few requirements; you need a labor force, so it shouldn’t be a very rural area. And it’s good to be in an area with a network of suppliers, so setting up shop in the South and Midwest are good options. Texas is also a good landing spot because of its relative vicinity to the East Coast, as Tesla’s other plants are situated further west.
But while Texas may be a good pick for Elon Musk, the question remains: Is he good for Texas?
Nate Jensen, a professor at the University of Texas-Austin, is unsure. Jensen, who studies economic development programs—whether they work, how transparent they are—is “skeptical about public claims of job creation and wages,” based on his experience. SpaceX, for instance, “has a history of not meeting their promises,” said Jensen.
For its aerospace operation in Brownsville, SpaceX received incentives through the Texas Enterprise Fund, but failed to meet the requirements for job creation that the incentives required.
“They promised 300 jobs—a small incentive—and received $400,000,” Jensen told TechRepublic. “They renegotiated because they couldn’t make the jobs, and then they failed again on that,” he added. The full amount was “clawed back.”
He also doesn’t necessarily believe that Tesla can live up to its promise of creating jobs.
“These are just PR announcements, not real negotiations” he said. What often happens with incentive programs is that “job creation is nowhere near what is promised,” as happened in Brownsville. Both the state and the company have an interest in keeping up the illusion of job creation, however, Jensen noted, adding “the government isn’t usually keen to advertise when they fall short of the promises.” And in most cases, the job creation figures are simply not audited. There’s also “a lot of wiggle room,” he added, in counting “what is a job? Can you count contractors? Can you count part-time employees?”
It was rare, actually, that it happened in Brownsville, and that the clawback took place.
“‘Collusion’ may be too strong of a word, but it’s cooperative,” Jensen said. “Both sides look bad if it’s shown to fail.”
In a place like Brownsville, with high levels of unemployment, you should get in writing exactly how many jobs will be created for locals, Jensen stressed. He worries about the “Walmart effect”—or the negative impact on small businesses and on wages that can be a result of a giant corporation coming to town.
For the new Giga Texas, Tesla applied for tons of incentives, he said. “This is the ‘Musk model’—ask for everything—but they didn’t ask for anything yet from the Texas Enterprise Fund, which SpaceX was a part of. My gut is that something big will be announced, but there’s nothing formal.”
Instead, Tesla is part of Chapter 313, a state incentive program that forgives school taxes, which are very high, in lieu of income tax. What it means is the company only has to create 25 jobs. Even still, Tesla changed the language. “It’s a signal that they’re worried—that they can’t even meet the requirements for those 25 jobs,” Jensen said. “No one else in the program seems to re-write the language on these wages.”
Austin, in particular, is not necessarily in need of another company like Tesla entering the scene.
“Austin has a low level of unemployment, a tech boom, and struggles with both infrastructure and high costs of living,” he said. “We’re struggling with excessive growth,” he said, which is why Travis County, which gave Tesla the incentive, “actually paused their incentive program, saying “we don’t want to use public money for this, we’re already an attractive county.”
If Tesla came to Austin on its own, without public money, Jensen wouldn’t be concerned. As it is, “it could quickly turn into a loss,” he cautioned. What’s happening is that the area is turning into a mini Silicon Valley. Californians are driving up housing costs, for instance.
“We have a proposition on homelessness. We’re struggling like Seattle is struggling,” Jensen said. “We need every public dollar.”