Clickability tracking pixel

Tesla Expected to Bypass California for Nevada 'Gigafactory'

It’s a particularly harsh blow for California, Tesla’s home state, as state officials scrambled for new tax break approval and ideas to speed up the state’s notoriously slow environmental review process.

by David R. Baker, McClatchy News Service / September 4, 2014
Tesla Motors headquarters in Palo Alto, Calif. Flickr/Windell Oskay

Tesla Motors on Thursday is expected to name Nevada as the site of the electric automaker's planned $5 billion "Gigafactory" for advanced batteries, following an intense competition among five states trying to land the massive project and its 6,500 jobs.

Tesla officials plan to join Nevada Gov. Brian Sandoval Thursday in Carson City to make "a major economic development announcement," company spokeswoman Liz Jarvis-Shean said Wednesday. The Wall Street Journal reported that the press conference would announce Tesla's decision to build its lithium-ion battery factory in the state.

While not a surprise, Tesla's choice comes as bitter news to officials in California, Arizona, New Mexico and Texas. Each state tried to woo the high-profile company with promises of tax breaks and speedy permitting, hoping to win that rarest of economic prizes -- a large, new manufacturing plant.

It's a particularly harsh blow for California, Tesla's home state. When the company, based in Palo Alto, first announced its short list of potential Gigafactory sites in February, California wasn't on it. State officials scrambled to get into the game, approving a new tax break for battery manufacturers and floating ideas to speed up the state's notoriously slow environmental review process for new construction.

But the state had been considered a long shot.

Reaction in California

"We are sad to learn of the decision, although we're not surprised," said Jim Wunderman, CEO of the Bay Area Council, a business group that lobbied Tesla to build in California. "In many conversations with Tesla, we knew they'd ultimately do what was in the interest of their business, even though I think they seriously considered what California was bringing to the table and the advantages we offer."

Each state kept the exact details of its bid secret. But Tesla executives said they expected the winner to offer incentives worth roughly 10 percent of the project's total cost, or $500 million. The high stakes prompted several public policy groups to complain that the states were engaged in a "race to the bottom," trying to outdo each other's tax breaks to a private company.

Nevada had been considered the front-runner. Tesla representatives scouted the Reno area in February. And the company reported in July that it had broken ground at a "possible" Gigafactory site, in a technology park about 9 miles east of Reno. The location boasts easy rail and freeway access to Tesla's Fremont auto plant, where the company builds its popular Model S electric sedan. The nation's only active lithium mine lies in Nevada -- another plus for the state.

Tesla has said that it was still studying other sites in other states and would pursue construction wherever it could secure permits first.

"We'll be doing something similar in one or two other states," Tesla CEO Elon Musk said in July. "It makes sense to have multiple things going in parallel."

Other factories possible

The company has also raised the possibility of building more than one Gigafactory, although financial analysts consider that move unlikely, at least in the short term.

It remains unclear whether Tesla will continue pushing forward on other sites outside Nevada. Several state government insiders said California's efforts now may be to ensure that California lands future Tesla factories. State Sen. Ted Gaines, R-Rocklin (Placer County), said his mission now is to make the state "the No. 1 destination for the next Gigafactory."

Gov. Jerry Brown signed a bill in July containing language that gives battery manufacturers a break on property taxes. And legislators created a placeholder bill that they could swiftly pass if any element of California's bid for the Gigafactory required legislative approval. The Legislature adjourned last weekend without any action on the bill.

One of California's biggest hurdles was the state's extensive environmental review process, which often takes years for big construction projects. Musk explicitly pointed to that issue when discussing Gigafactory plans, saying it made the state an "improbable" location.

In response, California officials discussed finding ways to speed up the process, something they did last year for Sacramento's new basketball arena.

Need for speed

Speed is a priority for Tesla. The company needs to build the plant on a tight timeline, opening it no later than 2017 to hit production goals. The Gigafactory will combine every aspect of battery manufacturing -- from processing raw lithium to recycling spent batteries -- in one facility. That will cut the cost of Tesla's batteries by at least 30 percent, according to the company. And that savings, in turn, will enable Tesla to offer its first electric car for middle-class customers, the $35,000 Model 3, expected to hit the market in 2017.

©2014 San Francisco Chronicle

Looking for the latest gov tech news as it happens? Subscribe to GT newsletters.

E.REPUBLIC Platforms & Programs