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Analysis

Tesla looks like a good bet to hit its April job target

David Robinson

It's beginning to look like a good bet that Tesla Inc. will build the workforce at its South Buffalo solar panel factory fast enough to avoid paying a $41.2 million penalty to the state.

Tesla CEO Elon Musk tweeted this week that the company will host its April "company talk" from the Buffalo factory – the first time the RiverBend complex will be highlighted to employees.

The timing also is interesting, since April is when Tesla has to have its Buffalo workforce up to 1,460 people, or else face a fine from the state, which spent more than $950 million to build and partially equip what the company now calls "Giga New York."

Tesla, which has only once before allowed reporters into the factory for a tightly controlled visit without cameras, also said it would offer tours to both the media and customers.

Of course, we're forced to read tea leaves with Tesla because the company, despite being the beneficiary of nearly $1 billion in taxpayer money, has only shared snippets of information about the Buffalo plant.

But Musk wouldn't be calling attention to the factory at the deadline for its hiring target if he expected the company to fall short and get slapped with a hefty penalty.

On top of that, Musk said earlier this month that Tesla has been hiring "hundreds" of workers at the Buffalo factory. But, in true Tesla fashion, he didn't provide any details.

Assemblyman Sean Ryan, D-Buffalo, and Buffalo Mayor Byron Brown managed to finagle a tour of the secretive Tesla factory last week. Both reported that the factory now employs more than 1,100 people, putting it within reach of its April hiring goal.

"I was pleasantly surprised," Ryan said. "It was encouraging to see solar roofs, batteries and charging stations being built in the facility."

He also said Tesla officials told him they expect to meet the hiring target in time.

"I was impressed. A lot of people working," Brown said Thursday.

"My confidence is certainly much higher after taking the tour," Brown said. "It certainly gives me a great sense of confidence that they will meet the goals."

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If Tesla is less than 400 workers away from keeping its hiring promises, the company would be foolish not to pull out all the stops to get there, even if it means adding dozens, or even hundreds, of new employees long before they're really needed.

That's because it will be cheaper for the company to boost its payroll to meet the hiring target than it would be to pay the penalty. Tesla could hire 400 workers and pay each one $50,000 in wages and benefits and it would cost the company only about $20 million a year – less than half of the penalty it would otherwise face.

The solar energy business typically merits a couple of sentences in Tesla's highly scrutinized quarterly letter to shareholders, and it sometimes – but not always – gets a couple of minutes of attention during its hourlong conference calls with analysts that follow.

There's good reason for that. Tesla is, first and foremost, an electric vehicle manufacturer, and its recently launched Model 3 sedan was a linchpin product that needed to launch successfully for the company to be financially viable. Tesla managed to pull off that launch last year, and it's been profitable for two straight quarters after losing more than $1 billion during the first half of 2019.

To pull off the Model 3 launch, Tesla had to starve the solar energy business of so many resources that it has turned to a shadow of what it once was. The solar roof that it unveiled in 2016 took far longer to develop than the company said. It's now on its third version and while Musk said last year he wanted to be making 1,000 of the SolarGlass roofs in Buffalo by the end of the year, there's no indication that's happening.

But if Musk's recent tweets are any indication, the solar energy business is getting more attention these days. He's asking Tesla customers for feedback on the roof. He says Tesla will be offering new variations beyond the textured black finish it now is selling. Musk even said the company plans to announce soon when the solar roof will be available in China and Europe, which seems a bit premature at a time when it is scurrying to train crews in the United States to install the complex solar roof, which has solar modules inside glass shingles.

To revive its solar sales, Tesla cut prices. It unveiled new programs allowing consumers to rent their solar arrays for as little as $50 a month. It launched a new online ordering system for commercial customers.

And resources are less of an issue now. Tesla said Thursday it would capitalize on the surge in its share price by selling about $2 billion in stock to help fund its plans to pump as much as $3.5 billion in various business projects this year.

Yet Tesla still has a long way to go to rebuild its once-dominant solar energy business. The company's solar energy deployments are growing again, rising by 26% compared with the third quarter. But the solar business has shriveled so much under Tesla's stewardship that its fourth-quarter deployments still were 26% less than they were during the final three months of 2018. The solar energy business, which once commanded more than a third of the U.S. residential market, now ranks No. 3 in the U.S. and has a market share that's around 6%, according to Wood Mackenzie Power & Renewables.

Tesla said earlier this month that it expects solar deployments to rise by 50% this year. But even if that happens, its 2020 solar deployments will be around 260 megawatts – its second-lowest since 2013, when the solar business was part of SolarCity.

To bolster its Buffalo workforce, Tesla last year started making electrical components for its batteries and its electric vehicle charging stations at the South Park Avenue factory, but it has divulged few details about that. Tesla executives say they are creating a "center for excellence" for power electronics in Buffalo.

So at the moment, the tea leaves are telling a story that seems to be positive. But it will be a couple of months before we know for sure.

News staff reporter Deidre Williams contributed to this report.

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