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California positively gets a negative from Tesla on battery factory

California loves Tesla Motors.

The Palo Alto electric car maker's Model S sedan is the state's new eco-luxury status symbol. Californians bought more than a third of Teslas sold globally last year. Residents of the state pack the order list for Tesla's next offering, a sport utility vehicle.

California pollution-control policies enable Tesla to rake in tens of millions of dollars each year from selling environmental credits to other automakers — a key source of Tesla's revenue.

But is this a case of unrequited love? When it comes to building a $4-billion to $5-billion battery factory that will employ 6,500 workers, Tesla is shunning the Golden State.

The automaker is looking at 500- to 1,000-acre sites in Arizona, Nevada, New Mexico and Texas. Although the location hasn't been determined, Tesla has crossed California off the list. The company declined to comment on the reasons.

State officials aren't saying much either. A spokesman in Gov. Jerry Brown's administration said the state presented a proposal to the automaker with several possible sites, but that the automaker didn't bite.

Brown's office provided no other details.

"The Governor's Office of Business and Economic Development maintains a strong partnership with Tesla and continues to work with them on future opportunities in California," the office said in a statement.

When Tesla's "gigafactory" opens in about three years, it will be large enough to manufacture more lithium-ion batteries than the entire industry produces now. The automaker said it expects the advanced technology plant will slash the cost of the battery packs for its cars by almost a third, enabling Tesla to introduce a car that will sell for roughly half of its $70,000 to $100,000 Model S sedan.

Cost and politics are the two biggest reasons Tesla is looking elsewhere.

Land prices alone make a project of this scope more expensive than in the other states, said Michael Bernick, the former head of California's Employment Development Department. Wages are also higher than in the other regions, he said.

"Tesla should have no difficulty finding skilled workers wherever it locates," Bernick said.

The automaker also wants to extend its geographic footprint.

"Tesla wants to broaden its production efforts nationally to be less dependent on one state and its regulations and economic outlook," said Thilo Koslowski, an analyst at Gartner Inc.

"Tesla might also hope for the other states to make themselves attractive to the company by offering some incentives such as tax deferrals," Koslowski said.

Although the plant will be built outside California, the technology development that goes into the factory and its batteries will probably be done in the state, said Stephen Levy, director of the Center for Continuing Study of the California Economy.

"Those are important jobs for California," Levy said.

Tesla is known for playing regions against one another to exact concessions and incentives.

Back in 2010, Downey officials believed they had a deal for Tesla to set up shop in a closed facility once used to build the space shuttles.

But Tesla, bolstered by a $50-million investment from Toyota Motor Corp., decided instead to build its electric cars at a plant in Fremont, Calif., that was previously operated jointly by the Japanese automaker and General Motors. Tesla paid only $42 million for the factory.

"We are shocked, upset and betrayed," Downey City Councilman Mario A. Guerra said at the time.

Tesla courted — then spurned — politicians representing two other potential plant locations before Downey.

Tesla said in early 2007 that it would open the plant in Albuquerque, after then-New Mexico Gov. Bill Richardson promised tax credits and the purchase of 100 vehicles.

But a year and a half later, Tesla dropped those plans, announcing instead that San Jose would be the future home of car production and that it would sign a 40-year lease in exchange for 10 years of free rent and sizable tax benefits.

Then that deal also fell through, before Tesla finally moved forward with plans to open the Fremont plant.

New Mexico officials don't seem to hold any grudges over losing the auto plant. The state is again actively pursuing Tesla for the battery factory.

"Tesla is a fantastic company, and what they're trying to do with their new high-tech products is groundbreaking," New Mexico Gov. Susana Martinez said in a statement. "We obviously face stiff competition, but ... we're making the best case we can to have this very good company come to New Mexico."

So far, the states trying to woo Tesla are keeping the details of their talks confidential.

Texas Gov. Rick Perry is reportedly heading talks with the automaker, but his administration won't provide any details. Texas already has a thorny relationship with Tesla. The state requires automakers to sell through dealers and has blocked Tesla's efforts to open company-owned car stores.

Nevada officials welcomed its selection as a finalist for the plant.

"Tesla is an exceptional company," said Steve Hill, executive director of the Governor's Office of Economic Development.

Hill said he is working with regional development authorities and local governments to educate Tesla about Nevada's workforce development and training programs, low operating costs and commitment "to provide the climate necessary for innovative businesses to thrive."

Even though the new battery factory will be built elsewhere, California officials point out that Tesla has made a considerable investment in the state.

The bulk of the company's 6,000 employees work at three California sites: the Fremont factory, Tesla headquarters in Palo Alto and the design studio in Hawthorne, near Los Angeles International Airport. Additionally, Tesla has more than two dozen company-owned showrooms and service centers in the state.

Although Tesla said the total investment in the battery factory could reach $5 billion, it plans to pump about $2 billion into the project. The rest will come from its battery partner, Panasonic Corp., and other companies that might join the venture.

The impetus for the investment is Tesla's plan to introduce a lower-cost, mass-market electric vehicle in about three years. This so-called Gen III car would be smaller than the current Model S sedan and the planned Model X SUV.

Tesla Chief Executive Elon Musk has said the Gen III car could cost $35,000 to $50,000 and sell by the hundreds of thousands if it achieves wide market acceptance. Lowering the cost of the batteries that go into the car is a key factor in slashing the price.

jerry.hirsch@latimes.com

Twitter @latimesjerry

Copyright © 2014, Los Angeles Times
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