Aug 14
2024
New Tesla deal slashes penalties, ups rent
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New York State officials are prepared to slash penalties on Tesla in coming years, even if the company fails to hire enough workers at its South Buffalo plant and across the state.
Under the company’s current arrangement with the state, Tesla must employ 1,460 workers in Buffalo and 2,000 statewide or else pay a $41 million fine. That deal, however, expires this year.
According to details of a draft agreement, which could run through 2034, Tesla must employ 1,800 in Buffalo and 3,000 statewide. The current penalty will stay in place through 2029 but will drop to $10 million after that.
Before CEO Elon Musk announced company-wide layoffs in April, state officials were prepared to cut the fines sooner and more steeply. Tesla and state officials agreed to fines no higher than $3,333 for every job Tesla fell short on hiring, according to a letter of intent signed in January that outlined terms of the new deal. Had the company missed its goal by 1,000 jobs, for example, it would have only owed a $3.3 million fine.
Officials have since reinserted existing penalties of $41 million for the first half of the new agreement with the company, with reductions not occurring until 2030.
Other terms of the new deal — details of which Empire State Development released in response to a Freedom of Information Law request — include:
- Tesla will locate its “Dojo Supercomputer” at the Buffalo factory, a $500 million project Gov. Kathy Hochul announced in January.
- Tesla will pay rent — $2 million annually through 2029 and $5 million annually through 2034.
- Tesla will hire 500 more employees if state lawmakers allow it to open 10 direct-to-consumer car dealerships across the state.
The agreement, which is not believed to have been signed, would also see both Tesla and Empire State Development invest more in job training programs in Buffalo.
Letter of intent, correspondence between New York and Tesla. Records obtained via FOIL.
Despite Tesla’s increased investments and job commitments, critics of the state’s original deal with Tesla said the new lease doesn’t go far enough to hold the company accountable to taxpayers who paid for the $959 million factory the electric vehicle manufacturer occupies.
“It makes a bad deal better,” said state Sen. Sean Ryan, chair of the Senate’s economic development committee, who noted neither the original agreement nor the draft agreement required higher wages for Tesla employees.
Empire State Development declined to make officials available for interviews for this story. An agency spokesperson also provided limited information in response to questions from Investigative Post. It’s not clear, for example, if a final agreement has been signed yet.
In response to questions about whether or not Tesla had agreed to have higher fines reinserted into the deal and if the agreement had been finalized, Empire State Development spokesperson Matthew Gorton suggested Investigative Post contact Tesla.
A Tesla representative did not respond to a request for comment. The company disbanded its public information team in 2020.
Details of draft deal
Tesla’s current lease with New York — which it took over from SolarCity and the solar panel parts maker Silevo — went into effect in September 2014 and was slated to last for a decade. That means it expires next month.
Tesla and Empire State Development signed a letter of intent outlining terms of a new lease and broader agreement Jan. 18. A week later, Hochul announced that Tesla would spend $500 million and locate its supercomputer in Buffalo.
Investigative Post filed a request under the Freedom of Information Law for details of that agreement shortly afterwards. For six months, Empire State Development failed to turn over records, despite state law giving agencies about a month to process requests. Investigative Post then appealed the agency’s delay and received 12 pages of documents in late July. Empire State Development released the January letter of intent and several pages of correspondence.
The correspondence showed that Tesla’s April layoffs alarmed Empire State Development and caused the agency to reopen negotiations with the electric vehicle manufacturer. Empire State Development President and CEO Hope Knight penned a letter to Tesla May 13 demanding to know how many workers the company was laying off and what its plans were for the Buffalo factory. Tesla responded two weeks later assuring Empire State Development that it was committed to New York and meeting its job goals.
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The agency was unmoved. Knight responded in a July 25 letter that said, because of the layoffs, “ESD will not move forward with the project revisions outlined in the [letter of intent].” She said additional negotiations were needed.
Prior to the layoffs, Tesla employed 1,804 in South Buffalo and 2,707 statewide. It cut 345 positions in Buffalo and 450 in total. Under the terms of the new agreement, it must employ 1,800 in Buffalo and 3,000 statewide. Empire State Development, records show, worried that Tesla wouldn’t be able to meet the terms of the agreement.
While some details of the deal have changed since the layoffs, other terms are still in place.
Tesla, for example, is still on the hook to invest a total of $5 billion in New York, not including its $500 million supercomputer project. The company must also now pay rent to occupy the publicly-owned factory on South Park Avenue: $2 million annually through 2029 and $5 million annually after.
In the event Tesla doesn’t invest $500 million in its supercomputer — discussed as part of larger regional effort to make advancements in the artificial intelligence sector — Empire State Development will double its rent until it meets that level of spending.
Tesla’s rent payments, however, will largely go towards maintenance and improvements at the factory, benefitting the company.
“It is intended that the base rental payments will provide a source of revenue to ensure the continued maintenance and repair of the Gigafactory New York manufacturing facility,” the letter of intent outlining the agreement states.
New York will further use $250,000 of the rent for job training programs through 2029 and $1 million of the rent for the programs through 2034. Tesla will separately pay $250,000 annually to job training programs.
Under the agreement, existing pots of money for facility improvements will remain. Investigative Post revealed in November the existence of a $29 million pot of money that Tesla has already tapped for factory projects.
It further stipulates that New York will ensure Tesla can win all regulatory approvals for its supercomputer.
“Tesla’s commitment to locate supercomputing capabilities at the Gigafactory New York manufacturing facility is premised upon ESD ensuring rapid and efficient permitting and a State commitment not to unreasonably withhold or delay all approvals, consents, permits, modifications or waivers,” the letter of intent reads.
The agreement also includes language that Tesla will hire 250 more workers in New York should lawmakers grant approval for the company to open up five direct-to-consumer dealerships, and another 250 jobs for an additional five dealerships.
The car dealership question
Tesla’s ask to open up more car dealerships is perhaps the most controversial aspect of the draft agreement. For one, it would take an act of the state legislature.
Prior to 2014, Tesla opened a total of five showrooms in New York despite a state law that restricts direct-to-consumer sales by auto manufacturers. Auto dealer associations sued the company but lost in court. In 2014, under a threat by the state legislature to ban Tesla from direct-to-consumer sales, the Cuomo administration brokered a deal allowing the company to keep its five existing dealerships open.
When Tesla acquired SolarCity in 2016, its consultants contemplated whether it should move into the Buffalo factory at all — or simply pay a fee to New York and walk away. The company chose to move into the existing factory, records show, in part because Tesla wanted to curry favor with state leaders so it could expand in the future.
“Any action by SolarCity related to this project that is viewed negatively by the local policymakers could negatively impact policies for the combined entity,” the consultant report concluded.
If Tesla wants to open more locations, state law would have to change. For now, it’s moving forward with a plan to open a sixth dealership on Oneida land near Syracuse.
Ryan suggested lawmakers would not have an appetite to approve more dealerships for the company.
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Auto dealer associations are also opposed.
“They should become a franchisee if they want to expand and play under the same set of rules that every other franchise dealer and independent dealer in New York State is currently exposed to,” said Paul Stasiak, president of the Niagara Frontier Auto Dealers Association.
He added: “I think Tesla should focus on keeping their employment where it should be and not worry about adding more locations. They’re getting a very generous tax break to be here, very generous, that most companies don’t achieve and now they want to take advantage of that further.”
Ken Girardin, research director at the Empire Center think tank, also questioned Empire State Development agreeing in principle to allow more Tesla sales locations. He, too, noted that there would be “lots of variables” at play to get the state legislature to approve more locations for Tesla. He said more comprehensive reform was needed, rather than catering to one company.
“They are dangling a carrot there,” he said. “It shouldn’t be a question of whether Tesla is or isn’t allowed to have a certain number of dealerships. The question is whether New Yorkers should be able to buy cars where they want to buy cars.”
Girardin and others also panned the new deal more broadly.
“We’re in the second decade of this thing,” Girardin said. “It’s so remarkable that this has been dragged out and drawn out and taken up so much emotional energy around this topic for so little.”
Ryan, meanwhile, described the new deal as an improvement on the current one, but said that it wasn’t yet a good deal.
“It’s a deal that was made under the former governor [Andrew Cuomo] and now Gov. Hochul and her team are trying to make the deal a little better. They are trying to salvage this deal they did not write.”
Elizabeth Marcello, an urban policy professor at Hunter College who studies economic development in New York, questioned the deal, too.
“At what point is ESD just going to say we screwed up here?” she said. “It’s time to do a massive clawback, and we can just walk away from this project.”
