The move disappointed Downey officials who had been wooing the automaker, hoping the company would set up shop in a closed facility that had been used to manufacture the space shuttle.
"We are shocked, upset and betrayed. We can see why the public is so upset with corporate America," said Downey City Councilman Mario Guerra, adding that Tesla had told the city it would sign the lease for the Downey plant on Friday.
Tesla, based in Palo Alto, instead will make its cars in a factory that Toyota and General Motors Co. formerly operated in Fremont.
The investment from Toyota was a major coup for Tesla, which has built only 1,000 high-performance Roadster electric sports cars largely assembled in England. Tesla plans to start manufacturing a sports sedan in 2012.
"We look forward to learning and benefiting from Toyota's legendary engineering, manufacturing and production expertise," said Elon Musk, the company's co-founder and chief executive.
The deal was worked out by Musk and Akio Toyoda, Toyota's president and grandson of the Japanese automaker's founder.
"By working together with a venture business such as Tesla, Toyota would like to learn from the challenging spirit, quick decision-making and flexibility that Tesla has. Decades ago, Toyota was also born as a venture business," Toyoda said in a statement.
Toyoda has been on a campaign to reinvigorate the automaker, saying that its drive to grow in recent years sacrificed the attention to quality that previously characterized Toyota. The company has recalled millions of autos in the past year for accelerator pedal and other safety defects and was fined a record $16.4 million by federal safety regulators for not disclosing information about problems promptly.
The companies said they would cooperate on the development of electric vehicles and parts as well as the production system and engineering support. Toyota already builds the Prius, the world's best-selling hybrid vehicle.
Restarting the factory is a major achievement for California economic development officials and a rare victory for a state that many business leaders say has become uncompetitive because of more regulations and higher labor costs than other states.
"I am thrilled with today's announcement and can't wait to see what this partnership brings next," Gov. Arnold Schwarzenegger said in a prepared statement. "What we are witnessing today is a historic example of California's transition to a cleaner, greener and more prosperous future."
Tesla previously considered locating its factory in Downey, Long Beach and cities outside of California, but it said it settled on the Fremont property because of the amount of existing auto factory infrastructure that is still usable.
"It is a big loss. We really needed those jobs," said Gerald Caton, the Downey city manager.
Tesla did not disclose what it paid New United Motor Manufacturing Inc. for the parcel. It purchased only the factory from the company, a joint venture between Toyota and GM, leaving NUMMI still in control of a large parking lot and an adjacent parcel.
The auto plant closed in April when a red Toyota Corolla, the last of nearly 8 million vehicles built there, rolled off the assembly line. The closure displaced about 5,000 auto workers, many of whom were members of the United Auto Workers union, and brought protests from national labor union officials, community leaders and politicians.
When it reopens, the plant will employ about 1,000 workers who will assemble Tesla's Model S electric sedan, which costs about $57,400 (before a $7,500 federal tax credit).
The Tesla factory helps cement California as a center of independent electric automobile research, design and production, an industry that some economists say could become an important driver of economic development and jobs in the state.
Coda Automotive, a Santa Monica company, plans to assemble and launch sales of a four-door electric sedan based on a Mitsubishi platform in either Oxnard or Los Angeles next year.
Fisker Automotive Inc. is moving its engineering and sales center to its Irvine headquarters from Pontiac, Mich., creating as many as 100 jobs in the coming year. Fisker is working on the Karma, an $87,900 plug-in hybrid that will be assembled in Finland, using mostly U.S. parts.
Chinese electric carmaker BYD said last month it would establish its U.S. headquarters in Los Angeles, creating about 150 jobs over the next year.
Tesla is owned by Musk, a PayPal Inc. co-founder who made millions when he sold the online payment business in 2002. Musk then started Tesla and Hawthorne-based Space Exploration Technologies Corp., which is developing the Falcon 9 booster, a nine-story-tall private rocket expected to have its debut launch from Cape Canaveral, Fla., in the next several months.
Toyota's investment in Tesla is particularly important because the electric vehicle company will be competing against far better capitalized and far larger traditional manufacturers. GM plans to start selling
its electric Chevrolet Volt later this year, and Nissan North America is about to launch its Leaf electric sedan.
"When an established manufacturer decides to partner with one of these newcomers it considerably increases their probability of success. It would give them manufacturing know-how and access to a distribution network," said Xavier Mosquet, a senior partner with Boston Consulting Group.
Although those automakers have not set their final prices, Tesla's Model S is expected to be considerably more expensive than the Volt or the Leaf. But it is also designed to compete with sportier, more expensive cars. Tesla said the Model S will accelerate from zero to 60 miles per hour in just 5.6 seconds, making it among the fastest four-door sedans on the road. It is expected to get 160 to 300 miles on a single charge depending on the version.
Tesla plans to raise additional funds in an initial public stock offering later this year and the Toyota transaction will be completed as a private placement to close at the end of the offering.
Times staff writer Marc Lifsher in Sacramento contributed to this report.