Name: Elon Musk and the $1 Billion ‘Bad Deal’ in Buffalo
Uploaded: 2023-07-07T02:05:00Z
Duration: 6 min 39 s
Description: New York spent nearly $1 billion on a new solar-panel factory in Buffalo, hoping Elon Musk and Tesla would use it to transform the local economy. WSJ reporter Ted Mann joins host Zoe Thomas to explain what went wrong.

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New York spent nearly $1 billion on a new solar-panel factory in Buffalo, hoping Elon Musk and Tesla would use it to transform the local economy.  WSJ reporter Ted Mann joins host Zoe Thomas to explain what went wrong. Photo: Malik Rainey/WSJ Photo

https://m.wsj.net/video/20230707/8797a648-855d-4226-8602-1dceea0f96a5/1/hls/manifest-hd-wifi.m3u8

New York spent nearly $1 billion on a new solar-panel factory in Buffalo, hoping Elon Musk and Tesla would use it to transform the local economy.  WSJ reporter Ted Mann joins host Zoe Thomas to explain what went wrong.

Elon Musk and the $1 Billion ‘Bad Deal’ in Buffalo

Zoe: Welcome to "Tech News Briefing." It's Friday, July 7th. I'm Zoe Thomas for The Wall Street Journal. Over the past decade, New York State has spent nearly $1 billion supporting an ambitious plan from Elon Musk to build what was supposed to be the biggest solar panel factory in the Western Hemisphere. It was meant to bring jobs and boost the local economy. This is how former New York Governor Andrew Cuomo described the project back in 2015.

You almost have to pinch yourself, right, that this is too good to be true.

Zoe: Eight years later, it may actually be too good to be true. Ted Mann reported on this for The Wall Street Journal and he joins me now. Ted, tell us how this started. Was New York originally planning to make this investment for Elon Musk?

Ted: So this started as a relatively small startup. It was a company called Silevo that the state was gonna offer to help get up and running with a factory. But while they were in the negotiation of that subsidy deal Silevo was purchased by Solar City, which at the time was the largest solar panel installation company in the country. Its chairman and largest investor was Elon Musk.

Zoe: So then, as some listeners will remember, Tesla bought Solar City. How did the company originally plan to use the facility?

Ted: The original plan, and this is what Cuomo and his administration and various leaders including the Buffalo's Mayor and the County Executive, they were all saying that they were going to revive the manufacturing economy of Buffalo. Buffalo is historically a big manufacturing hub in the United States. It had fallen on hard times, the steel industry had largely departed, and they were saying what would happen in this giant building that the state built in Buffalo was the production of solar panels, that this was where New York State and by extension the US was going to take the lead in producing solar panels which are mostly produced in China. And that just never came to pass for a number of different reasons. The technology that Solar City thought it was gonna get when it purchased Silevo was not as good, Musk and Tesla were much more consumed with getting some of their automotive products to market, and basically the vision that Cuomo and the state were promoting, which was that this would be a huge manufacturing operation that would have multiplier effects across the city and across the region with suppliers coming to flock to be near the factory and workers graduating from high schools and vo-tech schools in Buffalo able to get really good well-paying manufacturing jobs, that is just not what happened.

Zoe: So what has happened? What's the situation now?

Ted: Tesla has workers in the building. They're doing some assembly of some solar products, including what Tesla calls a solar roof, which is like a roofing shingle with a solar cell embedded in it. Tesla is keeping up with the terms of its subsidy agreement with the state, which required a certain number of jobs created every year of the 10 year deal. But they're doing that in part with jobs that they've moved into Buffalo from other places, they're doing assembly of some of the charting units, for instance, and then one of the largest units in the building is actually just what they call data analysts. These are people who are looking at images essentially of streetscapes and they're trying to input those images and code them to train the algorithm that Tesla hopes one day will actually provide a self-driving car.

Zoe: What has the company said about the fact that it is not using the facility in the same way that it had originally planned or was originally designed for?

Ted: In its reports to the state, Tesla describes, you know, a broad array of work that's happening within the building. They paint a fairly rosy picture of having invested in the facility and there essentially being jobs that relate to various parts of what they sell.

Zoe: And what has New York said about this? Because we know the state has spent $1 billion, but what's it said about what it's getting out of this?

Ted: The short answer is the state hasn't said very much. Cuomo wouldn't talk to us. The agency that oversees the subsidies and the agreement with Tesla did give us a statement saying that they believe that Tesla has had a positive effect on the regional economy. There are also state officials and elected officials who were skeptical of this from the beginning who are basically saying I told you so, that we didn't get anywhere near what we should have gotten for plowing $1 billion worth of the public's cash into the ground.

Zoe: What is Tesla getting out of the deal?

Ted: So Tesla's deal is a 10-year agreement to occupy a building that was constructed for them by the state, and they pay $1 a year to occupy that space. There's a possibility of an extension for another 10 years when they get to the end of the first. In return, they're supposed to create a baseline number of jobs and they're keeping pace with that so that they don't have to pay a penalty of about $41 million for failing to hit that threshold. So right now it means that there are as of February around 1,700 permanent jobs in that factory. But yeah, they're getting a very good deal in terms of the real estate. $1 a year, it's tough to beat. And the state also purchased $240 million worth of solar panel production equipment and that has mostly been sold at a discount or scrapped at this point.

Zoe: Big picture, are there lessons that other states might take away as they kind of look to attract new manufacturers to areas of their states as well?

Ted: Some of the people we talk to would say the biggest lesson to take away is that the states shouldn't have been in the position of putting up the capital here. The broader theme is how many governors in so many states are competing with one another to create bigger and bigger economic aid packages to try to lure big companies like Tesla to invest in their states. There are a lot of people who follow this, who see this as essentially a race to the bottom and they see more and more generous deals happening where it's not really clear that the public is getting what it should based on how much money they're willing to spend.

Zoe: All right, that's our reporter, Ted Mann. And that's it for "Tech News Briefing" this week. TNB's producer is Julie Chang, our supervising producer is Melanie Roy, and our executive producer is Chris Zinsley. I'm your host, Zoe Thomas. Thanks for listening and have a great weekend.

WSJ’s tech podcast featuring breaking news, scoops and tips on tech innovations and policy debates, plus exclusive interviews with movers and shakers in the industry.