California Gives Tesla $34.7M Tax Break To Help Expand Electric Car Production

The State of California confirmed yesterday that it will be giving Tesla Motors [NASDAQ:TSLA] $34.7 million in tax breaks to help it purchase new manufacturing equipment in order to dramatically expand its production capabilities at its factory in Fremont, CA.

Help from California in the form of tax breaks means Tesla can buy more equipment like this massive stamping machine.

Help from California in the form of tax breaks means Tesla can buy more equipment like this massive stamping machine.

As The San Francisco Chronicle reports, California normally taxes the purchase of manufacturing equipment, something which only a few states in the U.S. do but which many Californian business associations have been trying for years to eradicate.  For clean-tech companies however, California grants exemptions in order to encourage green practices.  Issued by the California Alternative Energy and Advanced Transportation Financing Authority, the tax breaks will mean Tesla won’t have to pay sales and use taxes on an estimated $415 million of manufacturing equipment.

Once installed, Tesla says production of its Model S sedan will be able to rise from the current production level of around 21,500 cars to more than 50,000 cars per annum. The additional equipment will also expand Tesla’s workforce by an additional 112 permanent jobs, something that will benefit both the local Fremont area and the state of California.

In fact, a report by the Advanced Transportation Financing Authority claims the extra jobs at Tesla, combined with a rise in sales from increased factory output, will result in a net benefit of around $24.4 million to the state.

“I’m pleased we could take this action to encourage Tesla to expand its electric vehicle production in California, which will create green jobs and improve our air quality,” said Chairman of the Advanced Transportation Financing Authority and Californian State Treasurer Bill Lockyer in a prepared statement yesterday.

Tesla's output will also increase dramatically as a result of this investment.

Tesla’s output will also increase dramatically as a result of this investment.

This isn’t the first time Tesla has qualified for tax exemption from California’s usual tax on manufacturing equipment. When Tesla purchased the former NUMMI facility in 2010, it received tax credits from the State of California in order to help it purchase some of the equipment it needed to tool up for preliminary Model S manufacture. The tax breaks, combined with some shrewd business practices on Tesla’s part, meant that much of the equipment it purchased — including more than $17 million of used manufacturing equipment and spare parts at massive discount from NUMMI’s former owner Toyota — saved Tesla tens of millions of dollars over building and equipping a new factory from scratch.

In total, the automaker has received tax exemptions on the purchase of equipment worth an estimated $612 million.

In addition to increasing output of Tesla’s popular model S luxury sedan, the extra factory equipment will also help Tesla tool up a second production line where its Model X crossover SUV can be built. Originally due to go on sale in 2013 as a 2014 model year, the seven-seat four-wheel all-electric car — built around the same chassis as the Model S Sedan — will enter production some time towards the end of 2014 as a 2015 model year.

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