The Second Coming of Henry Ford?

August 7th, 2014 by Phil Mattera

River-Rouge-PlantElon Musk apparently wants us to think of him as the second coming of Henry Ford. The CEO of electric carmaker Tesla Motors is planning to build a $5 billion, 6,500-worker battery “gigafactory” that is being likened to Ford’s legendary River Rouge complex in Dearborn, Michigan. Musk has a group of western states desperately competing for the project.

It remains to be seen whether the Tesla plant will rise to the level of Ford’s integrated industrial wonder (photo), which in the 1920s was the largest manufacturing site in the world. Yet the two facilities will have something in common: being built in part with taxpayer money. As Robert Lacey tells it in his 1986 book Ford: The Men and the Machine, Ford arranged for the federal government to pay $3.5 million for the deepening of the Rouge River and the draining of marshes at the plant site as part of the contract Ford had been granted to produce Eagle boats for the U.S. Navy.

Tesla has also received help from Uncle Sam — in the form of a $465 million loan it repaid last year — but now the company has its hand out to those states vying to be chosen for the gigafactory. It’s been understood for months that the winner of the competition would have to put serious money on the table, but now Musk has indicated exactly how much in the way of subsidies will be required: 10 percent of the cost of the plant, or about $500 million.

The company and its apologists insist that the demand is not excessive, noting that Volkswagen got a bit more for its assembly plant in Tennessee despite the fact that it is employing a lot fewer workers than Tesla promises. That’s true. Volkswagen got $554 million from state and local agencies, and that is far from the largest subsidy package ever awarded in the United States. In the Good Jobs First Megadeals compilation, it ranks 24th.

Yet such a comparison is problematic, because it is far from clear that the $500 million figure will be the total subsidy burden the winner of the Tesla auction would take on. In all likelihood, the $500 million would be only the up-front cost, while state and local governments would also probably have to offer long-term tax benefits that would end up being much more expensive.

This happens all the time. In the case of Volkswagen, public officials were initially mum about the estimated total size of the package, and it was only through reporting by the Chattanooga Times Free Press that the real costs came to light. By the way, VW is now getting $274 million more for a plant expansion.

Another egregious case of low-balling subsidy estimates happened in Mississippi, where officials initially put the cost of the package given to Nissan in 2000 at $295 million. Yet, as my colleague Kasia Tarczynska and I showed, when all was said and done, state and local agencies in the Magnolia State gave the carmaker subsidies worth more than $1.3 billion.

The odds that Tesla will seek to maximize its subsidy payoff are increased by the fact that it just announced a partnership with Panasonic. The Japanese company managed to extract a subsidy worth more than $100 million from New Jersey to move its North American headquarters a short distance.

Along with underestimated costs, there is a chance that projections about the Tesla project are overstating potential benefits. Particularly suspicious is the claim of 6,500 jobs. Given current manufacturing practices, a workforce of that size is highly unlikely. I can’t help but suspect that the number may include temporary construction jobs or supplier jobs. It’s worth noting that the heavily subsidized advanced battery projects in Michigan mostly created jobs only in the hundreds, the best case being the 1,000 positions created at A123 Systems before it went bankrupt.

And even if Tesla beats those figures, there’s the question of how good the jobs will be. The Japanese and German auto assembly transplants have had to set their wages close to those of the Detroit automakers (though benefits are substantially lower). Will Tesla feel any pressure to create decently paying jobs, or will it take advantage of a struggling area such as Reno, Nevada (one of the possible sites) or the low-wage, anti-union climate of Texas (another contender) to keep compensation levels low?

Fortunately, it is not entirely up to the company. The upside to the insistence on a big subsidy package by Tesla is that states attach some job quality standards to their awards. From this perspective, the best outcome would be for Tesla to choose Nevada, which ranked first in the rankings my colleagues and I at Good Jobs First did on state practices in this area.

Even if Elon Musk does not agree with Henry Ford’s famous wage boosting policy, he won’t be able to exploit his workers as thoroughly as he is doing to taxpayers.

Leave a Reply

You must be logged in to post a comment.