Elon Musk is so smart, he pre-positioned Tesla against Trump’s solar tariff
There he goes again. President* Trump’s new solar tariff is shaking out winners and losers in the US solar industry and it looks like Tesla co-founder Elon Musk is ending up on the winning side. I know, right, shocker! The Buffalo News has the scoop on a juicy tax deal that could help blunt any pain the new tariff inflicts on Tesla’s gigantic new solar manufacturing center, the Gigafactory 2.
And of course, Musk has at least one more trick up his sleeve…
Shuffling Solar Panel Manufacturing Off To Buffalo, Tesla Style
Tesla’s manufacturing venture in Buffalo, New York, began to take shape in 2016 with about $750 million in support from the state’s taxpayers. Apparently the original plan was to partner with Panasonic for solar panel manufacturing, leaving SolarCity’s much publicized solar-integrated roof tiles for a later date.
Solar Tariff? What Solar Tariff?
Everything seemed to be going along swimmingly until last month, when along came Trump’s solar tariff. The tariff seems all but certain to generate some level of pain across the US solar industry, though a consensus is emerging that the upheaval may not be as great as initially feared.
Last month, the Buffalo News reported that Elon Musk was among those who are unperturbed.
“Tesla is committed to expanding its domestic manufacturing, including Gigafactory 2 in Buffalo, New York, regardless of the solar tariff decision,” the company said in a statement.
Do tell! In today’s story, the Buffalo News explains part of the reason why Musk seems so confident.
Here’s the setup: Musk pledged to put 1,460 people to work at the new factory and foster another 1,440 jobs in the local supply chain. If the factory fails to come through with the promised numbers, Tesla stands to face up to $41.2 million a year in penalties.
The tariff threw a monkey wrench into the penalty structure, though. The whole thing is complicated and you really should read the Buffalo News piece for complete details (support your local journalists!), but for those of you on the go, the penalties are there to at least partly protect state taxpayers from getting soaked if their $750 million investment turns out to be a bust.
…the contract also lets Tesla avoid penalties if circumstances arise that are beyond its control. In the broadest terms, it means Tesla can avoid the penalties if the company is beset by an Act of God — things like landslides, earthquakes, fires, floods and epidemics.
So, when is a tariff not a tariff, but an Act of God? Whenever Tesla’s contract with the state of New York says it is, that’s when. As described by Buffalo News reporter David Robinson, a revision to the contract back in 2015 specifically included “significant increases in tariffs or duties relating to components necessary for the operation of the manufacturing facility.”
Yep, there goes that Musk crystal ball again. How he ever predicted back in 2015 that a failed businessman and former reality TV star would get to make all the big decisions on solar tariffs, we’ll never know. But, he did.
In any case, Robinson makes it clear that the tariff clause in the contract doesn’t let Tesla entirely off the hook, but it could provide enough “wiggle room” in its deadlines to avoid major penalties.
Musk has a lot riding on the Buffalo factory, which if all goes according to plan will be the biggest solar manufacturing facility in the Western Hemisphere.
That may not happen for a while if Tesla’s solar sales continue to slump (really, read Robinson’s piece), but Musk seems to have an answer for that already.
Last week, Musk announced that Tesla is planning to set up 800 splashy sales kiosks in Home Depot stores across the country. The new brick-and-mortar plan replaces the door-to-door business model deployed by SolarCity, which Tesla bought in 2016.
The move could have a significant impact on the installed cost of Tesla’s solar products. Under the SolarCity model, a good chunk of those costs was sucked up by sales commissions.
Also helping things along is a little clause in the new solar tariff that exempts the first 2.5 gigawatts of import sales.
Just about 500 megawatts were imported last year, so hmmm…math being done…that should help take some of the sting off, right?
If that doesn’t work, Tesla could request an exemption from the tariff for certain of its products. PV Magazine explains:
It is possible that Tesla will also seek an exemption, given that SolarCity before its acquisition by Tesla argued that AD [anti-dumping] and CVD [countervailing duty] duties on Chinese products should not apply to Silevo’s multi-junction solar products that it was importing from China. Since that time Tesla has switched to Panasonic’s Heterojunction Intrinsic Thin Film (HIT) technology for its solar “gigafactory” in Upstate New York.
And, if that doesn’t work Tesla could pitch its solar projects to utilities and local communities looking to deploy the “virtual power plant” concept — oh wait, that’s already happening.
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*As of this writing (seriously, when you’ve lost Trey Gowdy…).