California Gives Tesla a Tax Break

Nov 2 2009 | 9:20am ET

California’s Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) will provide electric car maker Tesla Motors with tax incentives to expand its production of cars in the state.

CAEATFA is exempt from paying the sales tax on equipment used to manufacturer advanced transportation products and can pass that tax break on to makers of zero emissions vehicles (ZEVs).

Under the terms of its agreement with Tesla, CAEATFA will assume title of $320 million worth of manufacturing equipment purchased by Tesla directly from vendors. CAEATFA will not pay the sales tax on the transaction. When the transactions are completed, CAEATFA will transfer title of the equipment to Tesla. The end result of the arrangement: Tesla will not have to pay the sales tax, saving the company slightly more than 9% of the $320 million total cost of equipment purchases.

The equipment purchases will be used for three purposes. First and primarily, Tesla will use $238 million to establish a production facility for its Model S sedan. No location has yet been determined but potential locations include Long Beach and Downey, CA. Tesla will also spend $59 million to upgrade its Palo Alto powertrain production facility and $5 million to expand current Roadster assembly at its Menlo Park facility. It will use $18 million on other unbudgeted equipment purchases.

Several ZEV technologies can take advantage of California’s tax incentive including, fuel cell electric vehicles, battery electric vehicles, plug-in hybrid electric vehicles, hydrogen internal combustion engines, advanced technology partial zero emission vehicles and neighborhood electric vehicles.

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