tariffs on solar panels give Tesla Inc. an escape hatch as it fails in
its job creation and investment promises around the globe and at its
sprawling solar panel factory in South Buffalo.
escape hatch could allow Tesla to avoid paying up to $41.2 million a
year in penalties to the state if the South Park Avenue factory fails
to turn into the job-creator that both the company and state officials
of the way Tesla's contract with the state is structured, the new
tariffs don't necessarily give Tesla a "get out of jail free card" if
it doesn't meet its timetable to create the 2,900 jobs it promises at
the factory and among its suppliers and service providers, said
William Savino, a Buffalo business attorney.
it does potentially give the company more wiggle room – and a way
to possibly get more time – to meet its targets without facing
millions of dollars in penalties if the tariffs slow the residential
solar market, Savino said.
one is saying that Tesla is going to walk away from the Buffalo
factory. In fact, the company and its partner, Panasonic, have been
ramping up production since last summer, with total employment there
now approaching 500 people. They still are planning to turn it into
the biggest solar panel factory in the Western Hemisphere.
is committed to expanding its domestic manufacturing, including
Gigafactory 2 in Buffalo, New York, regardless of the solar tariff
decision,” the company said in a statement after the tariffs were
move last month by President Trump to impose new tariffs on imported
solar panels adds duties of up to 30 percent on imported panels in the
first year that would gradually decline over the following three
years. The Trump administration imposed the tariffs as a way to
protect U.S. panel manufacturers, including Tesla.
the tariffs also have an unintended consequence because of an obscure
clause in Tesla's state contract.
state used $750 million in taxpayer money to build and equip the South
Buffalo factory as the centerpiece of the Buffalo Billion economic
development initiative. The contract includes penalties meant to help
the state recover at least part of its investment in the project if it
doesn't pan out as planned. Those penalties can be triggered if Tesla
doesn't meet annual employment targets or if its total investment in
the Buffalo factory, including payroll, doesn't reach certain levels.
the contract also lets Tesla avoid penalties if circumstances arise
that are beyond its control. In the broadest terms, it means
Tesla can avoid the penalties if the company is beset by an Act of
God – things like landslides, earthquakes, fires, floods and
epidemics. But Tesla's contract with the state, in a revision made in
late 2015, included other specifics circumstances beyond natural
included "significant increases in tariffs or duties relating to
components necessary for the operation of the manufacturing facility."
The Trump administration tariffs would do that, since the factory
currently relies on solar cells that Panasonic imports from its
facilities in the Malaysia and Japan. Each solar panel has several
dozen solar cells.
could, ultimately, make the tariffs less of a concern, if not render
them entirely moot. Panasonic is starting to make solar cells in
Buffalo and plans to ramp up their production steadily.
Tesla nor Empire State Development Corp. officials would comment. But
Savino said the triggering of the clause does not give Tesla a simple
and broad-based way of getting out of its contract with the state. It
could open the door for further negotiations with the state if Tesla's
solar business falters.
Tesla starts making its own solar cells, the company must cope
with the higher panel costs that the rest of the industry now
higher panel costs are expected to further dampen demand in an already
slowing solar energy market. GTM Research predicts that, through 2022,
the tariffs could lead to an 11 percent drop in solar installations at
a time when Tesla already has been scaling back.
the first three quarters of this year alone, Tesla’s total solar
installations – which include an undisclosed number of commercial
projects – were down by 32 percent. Tesla's share of the
residential solar market shrank from 35 percent in 2015 to 14 percent
during the third quarter, according to Reuters.
demand, stemming from higher prices, will make it harder for Tesla to
grow its solar energy business, even as it begins rolling out its
long-awaited solar roof, which looks like a conventional roof but has
solar cells inside. While Tesla will guarantee the solar roof for as
long as a homeowner owns the home, the roof costs much more than a
conventional roof and, even with energy savings factored in, has a
payback period that spans more than two decades.
solar cell prices will only extend that payback period for all types
of solar energy and could make solar projects uneconomical in markets,
especially in places like Texas and the Southeast, where electricity
prices currently are just barely high enough to make them feasible,
said Abigail Hopper, president and CEO of the Solar Energy Industries
Association, a solar advocacy group.