Texas among those playing factory poker with dealer Tesla Motors

Tesla signaled this would be no ordinary competition last fall, when it gathered economic development officials from seven Western states and unveiled its vision for a “gigafactory.” (“Giga” refers to the large amount of power that batteries produced at the plant will store.)

This spring, CEO Elon Musk announced Tesla would take the extremely unusual step of spending millions to prepare sites in two states — or perhaps even three — before the finalist was chosen. Then, over the summer, Musk said the winning state would pitch in about 10 percent of the cost, effectively signaling a minimum bid of $500 million.

“We don’t usually see companies setting a floor at which states will be considered,” said Leigh McIlvaine of the research group Good Jobs First, which tracks large subsidy packages by states.

It is very interesting that Tesla has so much control over these negotiations. I am reminded somewhat of the prisoner’s dilemma. Each state is at an informational disadvantage; they know nothing about the bids by the other states. I imagine Tesla has set up the negotiations this way because they believe they will get a better deal for keeping the bidders in the dark just as the police get a more favorable outcome in the prisoner’s dilemma.

The competition for the gigafactory began at an October meeting at Tesla’s auto assembly plant in the San Francisco Bay Area city of Fremont — a rare approach to opening a site selection process. Tesla executives laid out what a winning bid must have: “Green” energy such as solar or wind at a low cost, an affordable and well-trained labor force, good transportation links to Tesla’s Fremont assembly plant. And a robust package of incentives.

Tesla is putting its (or the government’s) money where its mouth is. Tesla claims their goal is to end our dependence on fossil fuels. It is only natural that Tesla should be expected to follow its own pledge. Requiring clean energy as part of the bid is also a way to encourage states to improve their infrastructure that might otherwise have never been improved.

Tesla’s poker face
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