Georgia Supreme Court won't hear challenge to Rivian EV incentive bonds

The Supreme Court of Georgia recently put an end to a long-running legal dispute that held up a state-backed development deal with electric vehicle maker Rivian.

The state's high court last week declined to hear an appeal filed by local residents opposed to the validation of $15 billion of bonds backing the construction of a new production plant for Rivian, clearing a major legal hurdle amid a court fight that's thrown the project into question for over a year.

In the wake of the favorable decision, authorities are "looking forward to working with Rivian," Georgia Department of Economic Development Commissioner Pat Wilson said in a statement. Opponents of the deal said they'll continue to fight the plan on other fronts.

Bloomberg News

After fielding offers from several other states, Rivian inked an agreement with GDEcD and the Joint Development Authority for Jasper, Morgan, Newton, and Walton Counties in late 2021 for the construction of a $5 billion, 16-million-square-foot plant less than 50 miles east of Atlanta that included the bonds and $1.5 billion in other incentives and breaks.

Rivian plans to turn a 2000-acre tract of former farmland into a central hub for production and sales, with a campus that includes facilities for battery and vehicle production, industrial waste processing, a test track, regional staff headquarters, and the promise of wider improvements to surrounding municipal utilities.

The site was chosen for its "logistics, environmental impact, renewable energy production, availability and quality of talent," Rivian said in a press release. Local officials said the plant would churn out around 400,000 vehicles annually at peak production and the project would directly provide up to 7,500 jobs.

The $15 billion of special project revenue bonds to be issued by the state via the counties' joint development authority are a key feature of a wider leaseback financing structure.

Under the agreement the carmaker would use the bonds to fund construction, renting new facilities from the JDA property tax-free upon completion, in return for payments-in-lieu-of-taxes to surrounding counties estimated, estimated to be $300 million over the first few years of operations. The agreement covers an initial period of 25 years, after which the company can choose to extend or purchase the facility by turning over the purchased bonds. 

The project garnered strong support from state leaders, including Gov. Brian Kemp, and Rivian initially eyed a summer 2022 start for construction, with production to begin in 2024. 

Dogged opposition from an area community group led by Morgan County resident JoEllen Artz kept those plans in limbo, however.

In July of last year, Artz's group sought to stop validation of the bonds, filing a challenge that targeted the deal's PILOT payment agreement that Artz and opponents said amounted to a $700 million tax break for Rivian to the loss of municipal governments in the area.

According to the suit, the special leasing arrangement offered by state and local officials made Rivian more than just a tenant of the planned new facilitates and rather gave the company "primary control" of the property, a fact the group's legal representatives believed would invalidate the basis for the bonds.

Ocmulgee Superior Courts Chief Judge Brenda Holbert Trammell agreed, ruling in October that the JDA had failed to employ adequate financial counseling during negotiations with Rivian, failed to perform independent analysis on the bonds in question, and failed in general to prove the project's "economic feasibility" in court.

Rivian itself proved a problematic partner as well, Trammel noted in her ruling, and was facing steep liquidity issues and billions in losses since going public, failing quarter after quarter, to meet sales and production targets; the company lost $6.8 billion throughout 2022 and continues to struggle to gain footing in an increasingly crowded domestic EV market.

"Rivian's cash reserves are quickly drying up, thus casting serious doubt on whether it will be able to commence, let alone complete, the project," she said. "The Georgia factory is supposed to be able to produce 400,000 vehicles annually as well, but the company sold only 10,161 vehicles in the first six months of 2022."

In November, the JDA and state appealed the decision, arguing that the project was "economically sound, feasible, and reasonable," and that the lower court falsely assumed the JDA was "committing economic suicide" to attract Rivian.

"It makes no sense that the state and these local governments would compete with numerous other states and localities to win this project if it were not," said court documents filed by attorneys with the Court of Appeals of Georgia.

Appeals judge Ken Hodges agreed and in May reversed Trammel's ruling, effectively giving the bonds the green light again and prompting Artz's group to pursue a last-chance appeal with the state's highest court.

In light of the decision, Artz said her the group will push for the case to be retried in the lower county court where Trammel or another judge can decide to validate the bonds or rehear the case.

The group is also hoping to challenge state and local zoning permissions in court, a move she believes will continue to delay the start of major construction despite the project already having received environmental approval from the federal and state government needed to begin work.

Rivian previously stated it would begin construction when legal issues tangling up the subsidy package financing the project were resolved.

In a statement Wednesday, the firm said it expects to have a formal groundbreaking "late this year or early next."

In the meantime, the company continues its efforts to figure out truck production at its first plant in Normal, Illinois, reporting July 3 that it had built 13,992 vehicles in the second quarter and delivered 12,640 to customers.

The company says those figures remain in line with its expectations, and it believes it is on track to deliver on the 50,000 annual production guidance previously provided.

From 2020 to 2022, EV makers have invested $85 billion in developing U.S. production, according to the Biden administration, in the hopes of tapping a North American market expected to be worth nearly $150 billion by 2028, 

$38 billion of that total came in fiscal 2022 alone, marking an accelerated pace of investments especially notable in the U.S. Southeast, where EV makers are finding cheap land, anti-organized labor governments, and developed infrastructure networks that can underpin their long-term operations.

South Carolina, North Carolina, and Kentucky, all recently inked deals with major automakers for EV plants that represented the largest economic development arrangements in those states' histories. 

For Georgia, the size of Rivian's incentive package is second only to the $1.8 billion the state offered to Hyundai last year to build a $5.5 billion plant outside of Savannah. The state has also recently announced another deal with Hyundai for the construction of a $5 billion battery plant backed by close to $700 million in state and local incentives.

Hyundai's sister firm Kia announced last week that it will begin production of the first electric vehicle at its existing plant in West Point, Georgia.