All things gigafactory - investment vs red tape

 Great little piece on the problems Elon Musk faces getting his European plant up and running. The issues raised are quite substantial:

What's happening with Tesla's $7 billion German 'gigafactory'?

Next Thursday, July 1, was supposed to be a day of celebration for Tesla: the opening of its self-styled 'gigafactory' in the tranquil German municipality of Gruenheide.

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22 Jun 2021

Next Thursday, July 1, was supposed to be a day of celebration for Tesla: the opening of its self-styled "gigafactory" in the tranquil German municipality of Gruenheide, just outside Berlin.

But thanks to fierce environmental resistance, red tape and planning tweaks it is completely unclear when the first vehicles will roll off the production line of the electric carmaker's first European factory.

Tesla has already pushed back the expected opening to late 2021. Yet the environmental agency in Brandenburg, the state where the 5.8 billion euro ($6.9 billion) plant is being built, has still not given final approval - meaning a further delay cannot be ruled out, even into 2022.

WHAT'S THE PROBLEM?

It's complicated.

Tesla and its billionaire boss Elon Musk unveiled plans in late 2019 to build the factory.

However the site partly overlaps a drinking water protection zone and borders on a nature reserve, which has drawn heavy opposition from local residents and environmental groups.

Last year, Tesla had to suspend clearing of a forest at the site after environmentalists from local group Nabu highlighted the risk posed to a rare local snake species whose winter slumber could be disturbed by tree-cutting activity.

The snakes had to be rescued before Tesla could proceed but there have been numerous other efforts to stop work at the site on environmental grounds.

"Thousands of hectares of forest will be cleared to create the needed infrastructure and housing space," said Manuela Hoyer, who lives about 9 km from the site and is a member of a local campaign opposed to it.

"To build such a plant in a protected drinking water area is actually a crime against the environment."

Her comments reflects a broader trend in Germany that has also seen renewable projects, such as wind farms, coming under fire from residents that fear the impact on the local habitat.

IS THAT REALLY IT?

No.

Bureaucracy has been a headache for Tesla, too, pitting the company's hands-on approach against Germany's infamous red tape.

So far, Tesla is working based on preliminary construction permits, with large factory halls and structures already built on the 740 acres of land it bought for 43.4 million euros.

But only when Brandenburg's State Environmental Agency provides the final permit can the plant be opened.

While it has previously said that it cannot say when that is every project that has obtained preliminary permits in Brandenburg eventually received the final ok.

But that's not discouraging environmentalists from throwing spanners in the works.

Last week Gruene Liga and Nabu submitted an injunction to a German court against provisional building permits for site, in the latest attempt to ensure Tesla is adhering to environmental laws.

"I think there could be less bureaucracy, that would be better," Musk said during his last visit to Gruenheide in May, markedly less enthusiastic than his "Deutschland rocks" verdict eight months earlier.

THE BATTERY CELL PLANT

Tesla's construction plans had to be fully resubmitted earlier this month to reflect the addition of battery cell production to the site, costing valuable months.

The Gruenheide plant comprises several units to handle component manufacturing and final vehicle assembly, including a press shop, foundry and body production.

It also includes a water recycling facility, a local fire brigade as well as a depot to ensure more efficient transport of components and other goods. Under the plans, the site's power needs are to be met via local renewable energy sources.

But adding battery cell production meant the company had to tweak and refile the whole application. Based on the most recent version, the plant will have the capacity to produce 500 million cells totalling 50 gigawatt hours (GWh) a year.

That's more than the 40 GWh facility rival Volkswagen plans to set up about 300 kilometres west in Salzgitter near its home base.

DOES ANYONE SUPPORT THE FACTORY (APART FROM ELON)?

Yes.

Tesla's move is seen as a major boost to eastern Germany, which has struggled with high unemployment rates and difficulties to attract large industrial firms.

Once fully up and running, the plant, which Tesla said will be the "most advanced high-volume electric vehicle production plant in the world", is expected to create 12,000 jobs and have a capacity of up to 500,000 cars a year.

"We're in favour of a shift towards emission-free mobility and the cars needed to achieve that must be built somewhere," said Ralf Schmilewski, a member of the Greens Party in Gruenheide's neighbouring town Erkner.

He said Tesla's plans also address a demographical issue, which has seen younger generations to leave the structurally weak area in their desperate search for jobs.

"Now they have a perspective and don't have to move."

SO WHAT'S NEXT?

Until mid-July, members of the public can sift through the roughly 11,000 pages of Tesla's application documents, including blueprints, tables and calculations, in the town hall of Gruenheide, the third time they have been put on display.

As part of the process, anyone can file objections until Aug. 16, before the Brandenburg environmental agency decides whether a public discussion should take place on Sept. 13.

When the documents were last made available publicly, in 2020, more than 400 objections were raised.

After that there is no clear timeline. At some point the agency is expected to grant final approval - but when is anyone's guess.

($1 = 0.8410 euros) (Reporting by Nadine Schimroszik and Christoph Steitz; Editing by Pravin Char)

Copyright (2021) Thomson Reuters. This article was written by Nadine Schimroszik and Christoph Steitz from Reuters and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

State aid to attract new firms - that's got to be good, right?

 

An X Factor contest to attract a Tesla gigafactory sets the stage for crony capitalism

The big worry is that the Government will harness its state aid powers to tilt the deck towards politically favoured regions

RYAN BOURNE27 May 2021 • 4:00pm

You could say conditions are ripe in the UK for crony capitalism.

Brexit has precipitated a consultation on revising “state aid” rules, with the prospect of fewer strictures on subsidies or tax incentives to attract certain investments. The Prime Minister and his local champions in Parliament are keen for “ribbon-cutting” successes to show the “levelling up” agenda in action. Add to that the pressure of net zero commitments and the political need to offset job losses from decarbonisation, and the Government is desperate for high-profile inward green investment.

So news the Government’s Office for Investment recently called on regional agencies to submit rapid location proposals for a new car factory, coupled with Elon Musk’s UK visit, sent the rumour-mill into overdrive that the Tesla boss is looking to open a electric vehicle plant or “gigafactory” in Britain. Tees Valley Mayor Ben Houchen and Teesside MPs, in fact, seemingly fired the starting gun on a very public regional beauty contest to woo Musk, also said to include South Wales.

Musk’s entrepreneurialism on electric vehicles is exciting and revolutionary. It is understandable that local champions such as Houchen would want this cutting-edge industry and a massive investment in their constituency, not least given the surging demand for electric vehicles as anti-carbon incentives proliferate. The problem is using regional contests to determine factory locations tends to be economically destructive.

The US has seen a proliferation of these spectacles, with companies playing state governments off against one another to “attract” the factory. “Winning” sometimes boosts local job creation, but most evidence suggests the financial and other incentives fail to lift regional economic growth, while leaving taxpayers worse off nationally. Companies get bungs for investment projects that often would have happened anyway, but with socially wasteful rent-seeking and copycat behaviour the result.

Tesla has a particular history of exploiting this competition for factory locations. In 2007, the company flipped its proposed car plant from New Mexico to California after the latter promised bigger tax exemptions. During a location hunt for a $5bn plant to produce lithium ion batteries in 2013, the company invited Washington state economic development officials to discuss its idea. When the officials arrived, they realised six other states had also been invited. The company wanted the message to be clear: this was a competition.

In fact, the “urgency” sought by the Office for Investment for these UK location proposals could be straight out of Tesla’s playbook. Back in 2013, the company gave US states just three weeks to submit opening location proposals for its “gigafactory.” After twisting arms, touring 100 sites, and playing hot and cold in public and private negotiations, the contest eventually saw the company extract a total of $1.4bn of company-specific financial incentives, made up of tax abatements and free land, to settle in Reno, Nevada.

Nevada’s Governor celebrated the win, as no doubt Houchen would if Musk set up on Teesside. Yet while “winning” like this no doubt brings observable, well-paid jobs and political prestige, the regional incentives themselves tend to, at best, simply displace activity across the country, as higher taxes are imposed elsewhere. Economist Matt Mitchell of George Mason University likens the process to a gardener fertilising some plants by composting others.

“At best” because, usually, the specific incentives do not affect the final location decision at all. The skills of the local workforce, the benefits of being around other similar companies, and the broader conditions of the region are usually more important considerations. Research, again in the US, has suggested that just one-in-eight regional economic development subsidies change a plant location from what we would otherwise expect. Taxpayers usually lose out for nothing.

That is not to say the effects of Musk’s location shopping are all economically destructive. His recent move away from California has exposed how overzealous regulation and high taxation have bad economic consequences. If the UK is going to prosper post-Brexit, it will need a generally pro-growth tax environment, reasonably priced energy, supporting infrastructure, a high-skilled workforce and a much more liberal land-use regime, all of which would help secure major investments like Musk’s.

What we should not do, however, is have regional or national politicians grant companies sweetheart deals dependent on where they locate. Not only do these tend to disappoint as companies promise the world — analysis up to 2018 suggested Tesla in Nevada was $1bn short of its $5.5bn investment promise, and had only created two-thirds of the projected jobs — but tilting the deck leads to inefficiency and other companies seeking out similar favours.

British regions have much less resource autonomy than US states, of course. So, in reality, “regional contests” here would be more limited by definition. Good. The bigger worry is that rather than focusing on the overall environment for business, the Government will harness its state aid powers to tilt the deck towards politically favoured regions.

For similar reasons, this would be the wrong path for Britain to go down. Not only would the Government find itself needing to step in with bigger bungs to ensure “unattractive” regions get a piece of the action, but other major companies would start demanding incentives to fulfil projects they intended anyway.

If Musk’s Tesla gets subsidies to locate in a given UK region, then other firms will ask: why not us too? Reports already suggest Nissan is demanding tens of millions of pounds in support for its own gigafactory proposal, including help with energy costs. And if the US experience shows us anything, it is that once one factory investment decision becomes a gaudy X Factor-style location contest, other businesses demand similar treatment.

Freeports, infrastructure, regeneration - all this and more

 

‘Blue wall’ mayor bids to create a super-port

Tees Valley mayor Ben Houchen aims to absorb PD Ports' vast Teesport container gateway into the freeport zone

ByRussell Lynch, ECONOMICS EDITOR17 April 2021 • 8:00pm

The Tees Valley mayor Ben Houchen is in talks with ministers and Middle East investors over a deal to create a new super-port and “level up” Britain’s former industrial heartlands.

Teesside is already set to become the largest freeport in the UK, after winning the new tax-friendly status to encourage investment and jobs in March’s Budget.

Some 4,500 acres of land including the former SSI steelworks is now owned by the South Tees Development Corporation (STDC) chaired by Mr Houchen, representing the biggest regeneration project in the UK.

But the mayor, who is seeking re-election next month, is now mulling an audacious takeover of PD Ports, currently owned by Canadian fund giant Brookfield. Mr Houchen aims to absorb PD Ports’ vast Teesport container gateway into the freeport zone and spur further investment.

Mr Houchen - a key ally of Boris Johnson in the so-called “blue wall” that helped deliver his resounding General Election victory - is understood to be in early talks with Downing Street and the new Office for Investment headed by Lord Grimstone over the possibility of buying PD Ports, whose major asset is the Teesport facility.

The move could be backed by Abu Dhabi based sovereign wealth fund Mubadala, which last month agreed a joint investment deal with the UK government which could see up to £5bn spent on life sciences, technology, clean energy and infrastructure over the next five years.

The senior source said: “One of the projects that we’re working on with Number 10 and Mubadala is the acquisition of PD Ports, and then to bring PD Ports into the wider ownership of Teesworks [the STDC] with various private partners, and then to turn the whole 4,500 acre site into a world-leading fully automated freeport with another £1-1.5bn worth of investment - to turn it into a brand new inward trade port into the UK.

“Bringing all of this together, it would probably make this the most advanced port in the UK with the investment from the Middle East.”

If realised, Mr Houchen’s ambitions would dwarf his previous £40m deal to take the region’s airport to public ownership - a key pledge when he was first elected in 2017 - after it was threatened with closure. Houchen said at the time that “international investment doesn’t arrive on a bus”.

Ben Houchen became Tees Valley mayor at the age of 30 CREDIT: Mark Pinder 

PD Ports’ main asset is the Teesport site, which employs 700 people and handled 28m tonnes of goods last year. But it is surrounded by the STDC land with just a single point of access, a risk to the business as the wider regeneration project gathers pace and construction work begins elsewhere on the vast site.

Insiders said the access issue is hampering Brookfield’s efforts to dispose of the company after putting PD Ports up for sale last year with a rumoured £1.2bn price tag through investment bank RBC.

Several buyers are understood have looked over the business but are unwilling to proceed without a second access to the port. “They can’t sell the business before this issue is resolved,” the source said.

The problem has gained added urgency as US conglomerate GE Renewable Energy has committed to a major new manufacturing facility building giant blades for wind turbines, which should create 2000 jobs.

“There is one road in and out of the port but if we build a massive shed for GE there is no prospect of getting a second access,” the source said. The STDC has recently taken PD Ports to court to establish that the company only has one legal access.

The Department for International Trade refused to comment on “commercial transactions by independent parties”. Lord Grimstone, Brookfield and the STDC all declined to comment while Mubadala was approached for comment.

Does shifting public jobs to the regions work? Good analysis

 

Forcing BBC and Treasury staff north won't break London's hold on Britain

Previous relocations show a limited impact on regions despite the Government's latest decision to up sticks

RUSSELL LYNCH

ECONOMICS EDITOR

23 March 2021 • 6:00am

Civil servants accustomed to the elegance of Horse Guards’ Parade are unlikely to have heard of Feethams House, but hundreds of their number will be discovering its delights before long.

The Darlington office block is likely to be the first port of call for 750 officials from the Treasury and other departments, before a permanent Northern campus is established under efforts to move 22,000 civil servants out of London by 2030.

Ironically enough, the building reportedly earmarked to help reintroduce metropolitan mandarins to the country that voted to Brexit was completed last year with a helping £2m hand from the European Regional Development Fund.

But these are mere details. As the Chancellor slightly hyperbolically put it in the Budget: “Our future economy demands a different economic geography. If we are serious about wanting to level up, that starts with the institutions of economic power.”

Feethams House in Darlington will house thousands of civil servants moving up North from London CREDIT: Ian Forsyth/Getty Images

It isn’t just the Treasury on the move. The UK’s new national infrastructure bank is heading to Leeds, and the BBC is moving up to 400 jobs away from the capital, scattering the media mavens away from urban enclaves in an attempt to look more like the country it represents. 

Some perspective is needed on the numbers. Cabinet Office minister Michael Gove talked last summer of “bringing government closer to people” and a “wider spread of decision-making across the country”. But even if 22,000 staff are eventually moved, that still represents fewer than one in four of the capital’s civil service workforce.

Decamping civil servants around the country is also by no means a new idea. Such drives have been periodic since the 1960s, with Sir Michael Lyons’ review in 2004 the most recent effort. The latest push may be in keeping with the cultural mood of the times, but the key question is how much economic good the new arrivals will do for the places where the new jobs land. Here the evidence is decidedly mixed, and in some cases downright damaging.

Take the BBC, and its move to Salford’s MediaCityUK complex in 2011 following the Lyons Review. The Centre for Cities examined the wider effect of the move between 2011 and 2016 in a study and concluded that for the most part, the relocation was simply sucking in media jobs from elsewhere, rather than creating new ones.

Excluding the BBC staff, there were 1,400 extra jobs, but only 370 of them in new businesses. Meanwhile the number of media jobs in Greater Manchester declined over the five-year period.

Thousands of BBC jobs moved from London to the broadcaster's MediaCity complex in Salford in 2011, but the shift did not spur local job creation CREDIT: PAUL ELLIS/AFP/Getty Images 

The overall impact on employment on the local economy was “fairly small”, prompting the thinktank to warn that local authorities should consider the “opportunity cost” of trying to attract the public sector: “Cities should be wary of deploying disproportionate resources that could be more effectively utilised to improve the fundamentals of the local economy such as skills and transport.”

Economist Giulia Faggio, who studied the wider moves under the Lyons Review, found signs of a short-term Keynesian kick to local job markets. But she also recorded evidence of displacement as companies move towards the new arrivals, and little longer-term effect on employment.

She says: “They seem to spur the creation of new jobs in services in the short-run resulting in higher overall employment. In the long-run, they seem to change the sectoral composition of local jobs towards services and away from manufacturing with no clear impact on total employment.”

Get it wrong meanwhile, and the results can be an unmitigated disaster. When the Office for National Statistics moved 1,000 of its London staff to Newport in Wales in 2005, the result was a catastrophic brain drain as just one in 10 staff opted to make the trip. That left the ONS with an inexperienced staff and prompted a slew of data errors for which the organisation was panned by the media and - privately - by central bankers.

Meanwhile for Newport, the move wasn’t exactly an economic boon. The ONS’s out-of-town campus meant there was less trade to be had for local restaurants and cafes, for example, while the often sensitive work it carried out limits its interaction with other local businesses. With the best will in the world, Newport’s pool of skilled statisticians is slim, so recruitment opportunities for locals were thin as well. 

The ONS’s difficulties underline the need to properly consider the effect of relocations for there to be any point to them beyond gesture. The Institute for Government, for example, cautions that the local labour market needs to be suited to the incoming department. Unless there is a long term plan to integrate the new outpost, as well as backing from the minister, the effective working of government could be compromised.

Who moves is also key. London is the home of 20pc of all civil servants, but 68pc of senior officials. Compare that with the North-East, which has just 2pc of the senior civil service. In London, just 14pc of staff are at the lowest administrative assistant or admin officer level, whereas more than a third of all civil servant jobs across the rest of the country are at these two grades. The types of civil service jobs done in the capital are also different, such as 75pc of economics roles, 71pc in international trade and nearly two-thirds of policy jobs.

Unless senior jobs are shifted as well to create a critical mass and demonstrate opportunities for career progression, new locations risk becoming ghettoised backwaters of lower-skilled staff. It would be a cruel irony indeed if an attempt to “level up” and create a “new economic geography” actually left the regions more exposed to job culls in future civil service prunings, because more those junior roles would almost certainly bear the brunt. 

The evidence suggests that if ministers are truly looking to “level up”, there are better ways to do it than sprinkling public employees around the country to uncertain effect. The UK is one of the most regionally unequal economies in the developed world: more useful would be devolving real power and funding to the regions to allow local governments to spend on their priorities.

Moving civil servants, by contrast, feels like a tokenistic gesture. Sir Humphrey has doubtlessly noted that Feethams House is a seven-minute walk to the station, and a two-hour fast train to King’s Cross. 

Very topical after yesterday’s class discussion

Ex-steelworks to make wind farm parts in plan for 6,000 green jobs

Britain has only two blade factories at present, with some blades and other turbine parts imported

ASHLEY COOPER/BARCROFT MEDIA/GETTY IMAGES

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The government will invest almost £100 million creating new wind turbine ports in northeast England, with a big renewables company announcing plans to make crucial parts in Teesside.

Two new wind ports, one in Teesside and another in north Lincolnshire, will create capacity for seven companies to make parts for the offshore wind industry, whose capacity the government has vowed to quadruple by 2030. The projects are set to create 6,000 new jobs.

As part of the announcement the government said that GE Renewable Energy, a multi-billion pound manufacturer, will build a new wind blade factory at the Teesside site, which is a former steelworks. The factory is due to open and start production in 2023.

Its blades will be supplied to the Dogger Bank wind farm off the northeast coast, which is set to become the largest offshore wind farm in UK waters, and will power up to six million homes.

The government is investing £20 million in the Teesworks Offshore Manufacturing Centre, and £75 million in the Able Marine Energy Park on the south bank of the Humber. The investments comprise more than half of a £160 million fund announced last year.

“During the Industrial Revolution over 200 years ago, wind powered the sails of ships from the Humber and Teesside trading goods around the world,” Boris Johnson said. “Now the Humber and Teesside will put the wind in the sails of our new green industrial revolution, building the next generation of offshore wind turbines while creating 6,000 new green jobs.

“Our multimillion-pound investment in these historic coastal communities is a major step towards producing the clean, cheap energy we need to power our homes and economy without damaging the environment.” The government is determined to demonstrate its commitment to green energy before hosting the COP26 climate change summit in Glasgow in November. This week John Kerry, President Biden’s climate envoy, held talks with Johnson, Rishi Sunak and Alok Sharma, the summit’s president.

Johnson has adopted the language of a “green industrial revolution”, a phrase that played a large role in Jeremy Corbyn’s 2019 election campaign, since November when he unveiled a ten-point plan to create 250,000 new green jobs with £12 billion of government money.

Yet despite Britain having more offshore wind farms than anywhere else in the world, ministers fear the benefits of increased capacity will go to other countries, which build more parts.

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Britain has only two blade factories already, one in Hull and another on the Isle of Wight, with some blades and other turbine parts imported. Nacelles, which house turbines’ generators, are often made in Europe, especially Denmark and Germany. Foundations are frequently imported from China and other countries with cheap labour.

Sources said that the government investment was designed to increase capacity for manufacturing those parts in the hope that private sector investment will soon follow.

Kwasi Kwarteng, the business secretary, said: “To ensure our businesses, supply chain and high-skilled workforce can fully share in the sector’s success, today’s investment in the Humber region and Teesside will put the UK in pole position to land new offshore wind investors.”

Hugh McNeal, chief executive of the RenewableUK trade association, said the GE Renewable Energy plant would transform the former steelworks site, adding: “This announcement marks the start of the next generation of offshore wind manufacturing.”