Construction permits show Tesla gigafactory 'huge bet'

Jason Hidalgo, RGJ    10:41 a.m. PST February 4, 2015

Tesla Motors' CEO called the gigafactory "a huge bet," with construction costs backing up the claim so far.

Touted as the largest lithium-ion battery plant of its kind in the world once finished, the joint project between Tesla and Panasonic continues to take shape in the Nevada high desert just east of Reno.

So far construction costs total at least $34 million through the first week of January, according to permits obtained by the Reno Gazette-Journal from the Storey County Building and Planning Department. The number does not include costs for ground clearing, retention basins and pad creation, which would further increase the amount projected for site work through the beginning of the year. The project is also pulling in contractors and subcontractors from various states, extending its financial impact far beyond Nevada.

Documents show 15 permitted projects approved so far at the gigafactory site since May 2014, which is when Reno-based F&P Construction was supposed to start clearing vegetation, according to paperwork filed with the county. Work on the site range from temporary power projects and work trailers to the facility's foundation and steel structure.

Tesla Motors CEO Elon Musk stressed the importance of the gigafactory to his company's growth and future prospects during an appearance at the North American International Auto Show in Detroit last month.

"(The gigafactory) is a huge bet but I don't know of any other way to do it," Musk said. "The amount of batteries we need is so huge that somebody's got to build this thing and if we don't contribute a bunch of money to building it, I just don't see any other company doing that."

In a state that is no stranger to big bets, Tesla applied the same unconventional approach to the gigafactory that it used as a car industry upstart. Construction activity kicked off at the Tahoe-Reno Industrial Center Tesla site last summer even as the multi-state bidding process for the $5 billion lithium-ion battery plant was officially still ongoing. The company's approach to contracting and closely managing projects, including hiring, as opposed to delegating primarily to a general contractor, also was described as "unorthodox" by labor representatives last year. The company took that as a compliment.

"I contest the whole idea that this is unorthodox — what this is, is pragmatic," said Diarmuid O'Connell, Tesla vice president of corporate business and development.

Although permits show a total cost of about $34 million for activity slated at the site so far, the number would be much higher if cost estimates for ground clearing, retention basins and temporary work trailers also were included. Storey County does not require companies to submit cost estimates for such work because it charges either a flat amount or fees based on acreage for those types of projects.

The per cubic yard costs for ground work can vary depending on the location and condition of the site. Using a conservative estimate of $15 per cubic yard, it likely cost an additional $2.1 million to clear vegetation and prepare the ground for the site. The retention basin for capturing water runoff would have cost $1 million or so using estimates of about $25 per cubic yard.

At 5.3 million cubic yards, creating the pad for the gigafactory likely entailed significant cost even when using materials from the site. An analysis done for the Reno Gazette-Journal by a local estimator shows pad creation at the Tesla site likely cost around $16 million. With the estimates added, construction costs to date at the gigafactory site go up to $53.1 million.

One of the big winners so far from the Tesla effect is Storey County, which collected nearly $246,000 in permit fees from Tesla through Jan. 7. The county has used the money to hire one new building inspector and one new fire inspector in order to be able to keep up with the large-scale project, said Pat Whitten, Storey County manager. Part of the fees also are being allocated to future county expenses related to the site.

"With a project this size, you'll have many more inspections that will have to be made as it progresses," Whitten said.

Beneficiaries from the project, however, are not limited to entities from Northern Nevada. Contractors and subcontractors working on the project include companies from 11 cities spread across five states — Nevada, California, Arizona, Utah and Pennsylvania.

One high-ticket item involves the construction of the gigafactory's $16 million foundation, which Philadelphia-based W.G. Yates & Sons Construction is overseeing. The first phase of the facility's steel structure will cost an additional $15 million, with Tesla contracting with Schuff Steel from Phoenix, Ariz. for the job.

The latest project approved by Storey County is for the construction of a 1,600-square-foot shell building. The permit was recorded on January 7 with work expected to be done in July.

Local unions are also reporting interest from workers from various states for the Tesla gig, which is considered a "glamour job" akin to projects such as the Bay Bridge, Levi's Stadium and the new Apple headquarters that's slated to be finished in 2016.

In addition to the potential impact on the lithium industry, the halo effect extends to the gigafactory location as well. Storey County continues to garner interest from other companies looking at the area as a potential location, according to Whitten.

"We flew a small team of four down to Phoenix just last week to look at a processing plant that's interested in Storey County and Nevada," Whitten said. "Clearly, the media attention and spotlight of successfully attaining Tesla has brought interest (to Storey County) from all quarters of the country and even the world."