New York State Built Elon Musk a $1 Billion Factory. ‘It Was a Bad Deal.’

BUFFALO, N.Y.—New York spent nearly $1 billion over the past decade on Elon Musk’s ambitious plan for what was supposed to be the largest solar-panel factory in the Western Hemisphere, one of the largest-ever public cash outlays of its kind.

“You almost have to pinch yourself, right?” New York’s then-Gov. Andrew Cuomo said at a construction ceremony for the factory in 2015. “That this is too good to be true.”

Eight years later, that looks like a pretty good assessment. 

New York state paid to build a quarter-mile-long facility with 1.2 million square feet of industrial space, which it now owns and leases to Tesla for $1 a year. It bought $240 million worth of solar-panel manufacturing equipment. Musk had said that by 2020 the Buffalo plant each week would churn out enough solar-panel shingles to cover 1,000 roofs.

The Tesla solar-energy unit behind the plan, however, is averaging just 21 installations a week, according to energy analysts at Wood Mackenzie who reviewed utility data. The building houses some factory workers, but also hundreds of lower-paid desk-bound data analysts working on other Tesla business.  

The suppliers that Cuomo predicted would flock to a modern manufacturing hub never showed up. The only new nearby business is a Tim Horton’s coffee shop. Most of the solar-panel manufacturing equipment bought by the state has been sold at a discount or scrapped.

A state comptroller’s audit found just 54 cents of economic benefit for every subsidy dollar spent on the factory, which rose on the site of an old steel mill. External auditors have written down nearly all of New York’s investment.  

“It was a bad deal,” said state Sen. Sean Ryan, a Democrat who represents Buffalo. “A cautionary tale is you can’t give governors too much power to get on the phone with egotistical billionaires.”

The former governor’s spokesman defended the project, saying the factory site has more jobs on it now than when it was an empty lot where a steel mill once stood.

Jason Conwall, a spokesman for the state agency overseeing the project, said: “Tesla has made substantial contributions to the local economy, aligning with the region’s overall economic revitalization.”

The state has agreed to amend the terms of its subsidy 12 times over the years, including by reducing the number of jobs to be created in manufacturing and shifting deadlines to accommodate the company.

Although there aren’t as many manufacturing jobs as the company and politicians had forecast, Tesla reported in February it has created 1,700 positions there, enough to meet its obligations to the state and avoid a $41 million annual penalty.  

Musk and Tesla didn’t respond to requests for comment, and Cuomo declined to be interviewed.

America’s governors are swept up in an arms race of awarding packages of taxpayer money to attract industrial megaprojects. Contributing are President Biden’s federal subsidies to build up U.S. manufacturing, particularly for electric-vehicle battery and semiconductor plants, some of which require states to kick in additional incentives. 

Last year, states gave each of eight company facilities more than $1 billion in tax breaks and other aid, according to Good Jobs First, a subsidy tracker funded partly by labor unions. Until then, there had never been a year with more than three such deals. 

In Wisconsin, a factory by Taiwan’s Foxconn that was to employ 13,000 workers in exchange for some $3 billion in state subsidies sits mostly empty. Suburban Virginia offered tax breaks to win a competition for

Musk’s electric-vehicle maker Tesla and space-transportation company SpaceX have received more than $4 billion worth of tax breaks and other government subsidies since 2006, according to a Wall Street Journal review of state and federal records. Nevada has provided financial incentives, including a $330 million tax abatement this year, to help Tesla build and expand a vehicle factory complex outside Reno. 

In Buffalo, the state spent cash to build the factory, instead of offering tax abatements that stretch out over years. Cuomo, a Democrat, billed it as the centerpiece of what he called the “Buffalo Billion.”

“In building and equipping the Tesla solar-panel plant, the state became a direct investor in that project under the worst possible terms,” said E.J. McMahon, founding senior fellow at the Empire Center for Public Policy, a fiscally conservative think tank. “In terms of sheer direct cost to taxpayers, this may rank as the single biggest economic development boondoggle in American history.” 

Rather than the high-tech factory workers the state intended, more than 700 of those working at the site are data analysts who review “real-time driving data that trains the AI” for Tesla’s autonomous-vehicle software, the company reported to the state in February. Others assemble components for vehicle-charging stations and backup switches for battery systems. “Tesla continues to manufacture Solar Roof,” Tesla reported about the solar-panel shingles product, but it provided no specifics.

Empire State Development, the state agency overseeing the subsidies, doesn’t keep track of what is being produced at the Tesla factory, or any others the state has supported, said a spokeswoman, Pamm Lent.

Tesla’s deal with the state requires it to stay in the factory, for $1 a year, through 2029.

Buffalo, once an engine of manufacturing, has stagnated for generations as industrial companies headed south. Previous efforts at renewal largely fell flat. In 2012, Cuomo said he wanted to spend $1 billion in state taxpayer money to turn Buffalo around, and regional leaders tapped the think tank Brookings Institution to outline an investment strategy. 

Central to the plan, laid out in a 2013 policy paper, was to avoid directing too much state aid to a few large companies. New York’s publicly stated goal was to incubate a handful of small startups in promising economic niches.

Cuomo’s adviser on the Buffalo project, State University of New York nanoscience professor Alain Kaloyeros, recruited solar-panel startup Silevo and LED lighting company Soraa to anchor the planned high-tech hub. The state said it would spend $100 million to build Silevo’s plant, in exchange for the company creating 1,300 jobs.

As it was finalizing that deal, Kaloyeros learned that SolarCity, then the country’s leading solar-panel installer, was considering acquiring Silevo. Musk was SolarCity’s chairman and largest investor. His cousins Lyndon and Peter Rive ran the company.

Working the phones, Kaloyeros tried to ensure that SolarCity would commit to keeping Silevo in Buffalo when they announced the acquisition, according to people familiar with the conversations.

Without alerting Cuomo, Musk and his cousins wrote in a blog post that the Buffalo factory would manufacture enough panels annually to produce one gigawatt of electricity. That is the equivalent of more than three million solar panels, according to the Department of Energy. “We are in discussions with the state of New York to build the initial manufacturing plant,” Musk and his cousins wrote, vowing to start operating “one of the single largest solar panel production plants in the world” within two years.

Cuomo was irate at being upstaged by Musk, according to the people familiar with the talks and email correspondence reviewed by The Journal. Kaloyeros told the governor’s staff in an email that Musk had “jumped the gun” in stating a goal of producing one gigawatt of power. Kaloyeros assured the administration that Cuomo would soon have his own news to break.

“The actual deal being considered is much bigger..5 GW to 10 GW..with 5,000 jobs..and that is being saved for the governor,” he wrote. Rather than scold Musk for frontrunning Cuomo, Kaloyeros wrote, “I prefer to shame Musk instead into joining the governor in announcing the much bigger deal asap.”

In September 2014, New York agreed to spend $750 million on the solar project, more than seven times its initial commitment.

Because the SolarCity project was to be so big, New York bumped its other original Buffalo tenant, Soraa, promising to find it another home. Soraa has since left New York.

At the August 2015 construction ceremony, Buffalo Mayor Byron Brown said the new facility, called Riverbend, would soon churn out 10,000 solar panels a day and create 3,000 jobs.

That October, SolarCity persuaded the state to remove the term “high-tech” from the jobs agreement, and reduced, from 900 to 500, the number of jobs that would be required to be in “manufacturing operations” at the Buffalo plant. 

By the summer of 2016, SolarCity was about $3 billion in debt and nearly out of cash. Tesla acquired it. Some Tesla shareholders sued, alleging Musk was using the carmaker to bail out another of his interests. A Delaware judge ruled in Musk’s favor last year, citing an increase in Tesla’s share price as evidence the SolarCity acquisition hadn’t harmed investors.

Musk’s vision for the Buffalo facility was that it would make a new kind of solar product. “It’s not a thing on the roof, it is the roof,” he said in an August 2016 SolarCity earnings call. “I’m pretty excited about what we’re doing in Buffalo.”

Many of Musk’s employees, as well as bankers advising Tesla on the SolarCity transaction, were blindsided by his focus on solar roof tiles, a product that was only in the early design stage. Responding to the exasperation, one executive wrote, “It’s Elon’s world. We all just live in it,” according to an email later disclosed in the shareholders’ lawsuit. 

In April 2017, Cuomo secured another $500 million for the project, about half of which went into the Tesla facility, bringing New York’s total investment in the factory to $959 million.

For a few years, the Buffalo site hummed with manufacturing, but it was carried out by Panasonic, Tesla’s supplier of solar cells. The Japanese company employed about 400 people in Buffalo before deciding in early 2020 to pull out.

Musk acknowledged in a June 2019 deposition for the shareholders’ lawsuit that he hadn’t been focused on solar energy for much of the previous two years because of the pressure to mass produce Tesla’s long-delayed affordable electric vehicle, the Model 3. He said he had redeployed every solar worker he could to Model 3 duties, which weren’t being carried out in Buffalo. “Just a little bit longer and then we can focus on solar, and you’ll see a dramatic turnaround,” he said.

At present, what was supposed to be a solar-panel factory is mostly populated by Tesla data analysts.

“In all honesty, they needed the jobs” to avoid paying the state penalty associated with the deal, said Will Hance, a 24-year-old data analyst who has worked at the Tesla Buffalo site since October. “As a whole, we are the biggest department there.”

Hance is part of an effort to unionize the factory, led by Tesla Workers United, which is affiliated with the Service Employees International Union. Labor leaders have been wary of Musk’s involvement from the outset, given his companies’ opposition to unions.

To prepare for Tesla’s arrival and a wave of solar-manufacturing jobs, Buffalo built a $44 million training center on the city’s economically disadvantaged East Side. The training center, which has graduated about 500 people in its four years of operation, has sent about 20 people to work at Tesla, most of them as equipment-maintenance technicians, its executive director said.  

Thirteen students have graduated from a separate solar-manufacturing training program started by Buffalo’s public schools. A spokesman wouldn’t say how many of them have been hired by Tesla.

Tesla has said little about its solar production in disclosures to investors. Musk has made no public appearances in Buffalo.

Democratic State Sen. Liz Krueger, chair of the senate finance committee, said the state should invest in infrastructure and worker training instead of “spending billions of taxpayer dollars pretending we’re very good at being angel investors.” 

State Sen. Ryan last visited the site just before the Covid pandemic. He and another public official who was on the tour later said that the activity they witnessed didn’t look like full-scale manufacturing work.

“We still want to wake up tomorrow and hear that Tesla is really going to invest in this factory, and we’re gonna have the jobs and the ripple economy that we were promised,” Ryan said in a recent interview. “So, everyone’s reluctant to dance on Tesla’s grave because we still want it to happen.”

Tesla’s troubles with solar in Buffalo were overshadowed by a federal corruption probe into the construction of the factory. Kaloyeros and others, including one of Cuomo’s closest aides, were convicted of rigging the bid process to award the construction contract to a politically connected local contractor. The convictions were subsequently vacated by the U.S. Supreme Court.

— Jimmy Vielkind, Rebecca Elliott and Jim Oberman contributed to this article.

Write to Julie Bykowicz at [email protected] and Ted Mann at [email protected]