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Elon Musk is billed as the new Steve Jobs. His all-electric Tesla cars are iPhones on wheels. The technology is not exactly new—Musk did not invent the lithium-ion batteries that power his products—but the cars are such a clever and sophisticated bit of packaging that they qualify as rolling industrial art. And they work. Consumer Reports, the ad-free bible of product testing, has ranked the Tesla S sedan as the world's best auto.

There is no doubt that Tesla has captured the imagination of wealthy consumers—the cheapest Tesla starts at about $70,000 (all currency in U.S. dollars). Investors, too—they have pumped up the stock market value of the low-volume manufacturer to about $30 billion. Environmentalists see Musk's cars at the forefront of an industrial revolution that will end with the death of the internal-combustion engine. He also co-founded PayPal and launched the SpaceX rocket company. Tech geeks imagine that Musk could keep the dream of American leadership in innovation alive.

Oh, Musk has another set of slack-jawed fans: state legislators. Like Jobs, this tech whiz also has a genius for extracting fortunes in subsidies from governments. The process is known as "getting Musked."

In September, the Nevada state legislature approved $1.3 billion in tax breaks for Tesla to build a $5-billion battery factory (known as the Gigafactory) near Reno. The giveaway is 15 times bigger than any industrial incentive package ever awarded by the state, and you have to give the company's CEO and co-founder credit for his Muskalicious lobbying campaign. Battery Boy concocted a competition among five states. He set a floor price of $500 million—the minimum subsidy for any entrant.

Nevada's incentives package is a beaut. Tesla will be exempt from property taxes for 10 years and sales tax for 20 years, at a cost of $1.1 billion to state taxpayers. It will get $195 million in tax credits that it can sell to other businesses. It will also get electricity discounts ranging from 10% to 30% over eight years, which will be financed by charging northern Nevada customers not named Tesla a bit more. The factory will generate much of its own power from geothermal, wind and solar sources, and will be able to sell excesses back into the Nevada grid at a premium. It will also qualify for a 30% federal tax credit for building a renewable energy plant.

In return, Tesla says it will create 6,500 jobs at the factory. That estimate may prove ambitious, since automation has a nasty habit of killing assembly line jobs. But even if it's accurate, the cost per job works out to $192,000. Nevada

Governor Brian Sandoval says that's a bargain; he estimates the battery factory will boost the state economy by $100 billion over 20 years. If you believe that, we know a gambling table in Las Vegas where the punter is guaranteed to win.

To be sure, manufacturers throughout North America have a long history of demanding corporate welfare before they make a big investment. Airplane manufacturers and carmakers are especially adept at the shakedown game. But when the traditional carmakers gorge themselves at the trough, taxpayers can be pretty much assured that jobs will actually appear, because cars with gasoline engines won't vanish any time soon.

Tesla is a shot in the dark, and plenty of fancy technology companies have tapped into government incentives, only to collapse or come up short of the promise. Fisker Automotive, the electric car company that was Tesla's competitor, went bankrupt. Ditto Better Place, the Israeli firm based in California that was to blanket the country with battery-charging and switching stations. Canada's Ballard Power Systems is still in business, but it was an epic disappointment. Dozens of solar power companies have fried to death in the sun.

Tesla could be the exception. There is no doubt that e-motoring is on its way. It's a question of when. Despite Tesla's stock market success, it's a stretch to call it a consumer success. The company is profitless under GAAP, and makes only about 35,000 cars a year. The U.S. market for e-cars and hybrids—cars powered by both batteries and gasoline engines, like the Toyota Prius—is only about 4% of auto sales. Electric car sales will likely get hit as oil prices decline and the fuel efficiency of regular cars improves.

The Nevada factory is supposed to reduce the cost of batteries so that Tesla can sell cheaper cars. But, in a vote of non-confidence in April, Dieter Zetsche, CEO of Germany's Daimler, a Tesla partner, said his company would not invest in the factory. "A question is: When do you realistically see the next-generation batteries?" he asked. He doesn't think that current lithium-ion batteries will vault e-cars into the mass market.

A month later, Standard & Poor's handed Tesla a junk rating, citing "significant risk" in the battery-factory strategy. Five months after that, Daimler sold its 4% stake in Tesla. The Nevada factory is being built. Paying blackmail for jobs never looked so expensive or so risky.

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Ballard Power Sys
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Tesla Inc

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