The state of California began investing in green technology companies three years ago, arguing this would support job creation.
Ironically, while green companies are sprouting up everywhere as a result, the state is now considering having to pay them to stay in California, now that the companies are actually about to create jobs. A group of California lawmakers is proposing legislation to create a $45 million clean-fuel technology fund, to keep companies like San Carlos, Calif.’s electric car company, Tesla Motors. Word is, they’re considering wooing Tesla with $20 million in subsidies.
Here’s the story behind Tesla: Led by then-treasurer Phil Angelides, the large public pension funds such as CalPERS and CalSTRS, together with CalCEF, began pumping money into venture capital firms three years ago, earmarking it for green technology start-ups. VantagePoint Venture Partners, one of the beneficiaries, is a backer of Tesla.
However, the electric car maker (which we first wrote about here), founded here, wants to expand and is considering building an electric car plant in Pittsburg.
Hat-tip to the Merc’s Vindu Goel, who has recently launched his own blog about Silicon Valley, and pointed this out to us. He correctly suggests $20 million is a lot of taxpayer dollars to be paying to one company. Indeed, the company may not even succeed. It is a very high-end performance car, and high-priced too. Questions remain whether Porsche lovers will really go for something like this. And if they do, how many? What if the company goes bankrupt? Should we the taxpayers create a state green bankruptcy fund to support it a third time?
There’s a similar case unfolding with Nanosolar, a cutting-edge venture-backed solar company in Palo Alto, Calif., which has negotiated with San Jose about building a factory there. The city recently approved $2 million in subsidies to host the factory there (more context here).
[Update: Tesla's Darryl Siry responds below in comments]
12 Comments
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Bryan said:
Are they considering building an electric car plant in Pittsburg, California or Pennsylvania? I’m guessing it’s the one in Cali bc I think the one in Penns has an H at the end.
I’ve been hearing somewhere that Tesla might be building a plant in Michigan. Any word on how California’s package sizes up to the one Michigan has offered them?
Either way, I love the car and can’t wait to see their next model. Anyone seen one on the road yet? I’ve heard their about the size of the Lotus Elise. -
Darryl said:
This article is a bit misleading so I wanted to take a chance to clarify some things.
A website like VentureBeat should understand the difference between an investment in a venture capital fund, with an expectation for significant financial returns, and state incentives for businesses. CalCEF has invested in Vantage Point ostensibly because they feel that Vantage Point will provide strong returns through smart investment. Vantage Point has invested in Tesla because they believe that Tesla will be a successful investment for their clients. This investment does not amount to state support for Tesla Motors.
Any investor in a business venture expects that the management of that company will do their best to manage the shareholders’ investment to generate adequate returns. It’s the fiduciary duty of management and the board to do so.(Note that Vantage Point Venture Partners has a seat on Tesla’s board of directors.)
In making a major capital expenditure, such as locating an assembly facility, Tesla needs to analyze all the options and consider all the aspects of each location (such as labor costs, logistics, etc.) in order to make the best decision for shareholders. In an effort to attract business and jobs to their states, governments sometimes offer incentives that they feel will benefit their constituents. This is the normal course of business today.
Last - the facility being discussed will assemble the next Tesla car, a 4-door 5 passenger sedan which will retail at $50,000 for the base version. It is not the facility where we assemble the Roadster, our 2-door sportscar.
Darryl Siry
VP Marketing
Tesla Motors -
Matt Marshall said:
My point is that Angelides and others mobilized the public support for investments in these technologies, using the argument that jobs will be created. Now, having embarked on that, we’re being told taxpayers dollars will be needed to keep those jobs. Find it notable, given that we’ve got a pretty hot job market right now, and the state is having trouble balancing its books. There might be better things to spend our money on.
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Darryl said:
Clarification - This is about 300 new jobs, not about keeping the existing 140 jobs created by Tesla to date. We have no plans to move our San Carlos facility out of California.
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John Doe said:
To be honest, with this hot job market, I would actually rather see some of these companies move out of state entirely just because of the crowding effect.
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Max said:
Dude,
CALPRERS and CALTRF are not taxpayer’s money. They are the property of pension owners like school teachers. We teachers trust venture capitalists like Vantage Point to invest our money in order to make our retirement funds grow. Many of the top-shelf VCs invest retirement fund monies.
What are you saying? Companies with VC backing should not apply for any grants or other incentive programs? Are you trying to make our teacher’s investments worth less?
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Jane Doe said:
You Silicon Valley types might have yourself a hot job market, but that aint the case here in Pittsburg. We are happy to have the jobs, and happy to see our elected officials working to bring manufacturing jobs to the area.
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Ken Feldman said:
Pension funds like CalPERS should be focused on maximizing ROI, not creating jobs in California. On the other hand, since they and other pension funds have had such excellent returns from their venture investments, which have traditionally invested in California based startups, they have been creating jobs in here. One of the ironies of this is the huge job growth in S Valley has lead to massive increases in housing costs, making it harder and harder for those whose money they handle, teachers, to afford to live in the area.
If California wishes to make investments that keep jobs in the state, then their should be taxes incentives for investors. (Having worked in the film industry, this has become a highly effective tool by other states to suck the life blood out of Los Angeles by creating “run-away productions”. Now New Mexico, NY, Louisiana, you name it, has some form of investor tax credit which is stripping away the supply of good paying middle income film jobs.)
If we want to keep jobs in the state, rather then create a new tax break for a single company (even though I love the Tesla), we should create jobs-related transferable tax credits for those who invest in California based companies that create jobs in state.
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Ken Feldman said:
Pension funds like CalPERS should be focused on maximizing ROI, not creating jobs in California. On the other hand, since they and other pension funds have had such excellent returns from their venture investments, which have traditionally invested in California based startups, they have been creating jobs in here. One of the ironies of this is the huge job growth in S Valley has lead to massive increases in housing costs, making it harder and harder for those whose money CalPERS handles (the teachers) to afford to live in the area.
If California wishes to make investments that keep jobs in the state, then their should be taxes incentives for investors. (Having worked in the film industry, this has become a highly effective tool by other states to suck the life blood out of Los Angeles by creating “run-away productions”. Now New Mexico, NY, Louisiana, you name it, has some form of investor tax credit which is stripping away the supply of good paying middle income film jobs.)
If we want to keep jobs in the state, rather then create a new tax break for a single company (even though I love the Tesla), we should create jobs-related transferable tax credits for those who invest in California based companies that create jobs in state.
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Matt Marshall said:
Max,
Calpers and Calstrs money is certainly public. We taxpayers responsible for meeting minimum requirements for the state-set pensions of public employees. If they screw up on investments, we foot the bill. This is public money, and requires public oversight. State employees do not themselves direct where this money goes. It is set by the pensions, run by various board members, but many of them appointed by the governor.
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Max said:
Dude, that’s a pretty weasily response. Your savings account is federally insured: if your bank screws up, we foot the bill. Does that make your savings account “public money?” If you then apply for an income tax deduction, are you double-dipping? Come on, man.
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David Isaacs said:
All you guys are missing the point. If Tesla is succesful there is a ripple effect that creats thousands of jobs & support services & manufacturing thru battery manufacturers, auto parts, panels, lights, instruments, seats etc.
