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Tesla's $5B Giga Battery Factory and Deep Politics in AZ, TX, NV, and NM

The yet unnamed location of Elon Musk’s outrageously ambitious $5 billion Tesla battery factory has been narrowed down to Texas, Arizona, New Mexico or Nevada for a while now. Construction potentially starts this year.

Electric vehicle pioneer Tesla Motors has suggested it will be building 500,000 cars per year by 2020 and hitting a scale that will drive down the cost of its 60 kilowatt-hour battery-pack by 30 percent to about $10,000. The project aims to disrupt battery costs enough to impact the distributed storage industry.

Tesla’s Giga factory will sprawl across 500 to 1000 acres of land situated near highways and rail, with space for a few hundred megawatts of solar panels and some wind turbines. 

The state that wins the factory gets billions in direct investment as well as a potential 6,500 jobs. Politicians in these states are looking to attract the world’s largest lithium-ion battery factory with the only tools at their disposal: tax payer money and promises.

Luring Tesla with incentives at secret meetings

Texas: The San Antonio Express-News reports that unnamed Tesla executives met on Wednesday with the mayor of San Antonio as well as with “the county’s top elected official, economic development folks, and someone from the local utility company.”

Texas, despite banning the direct sales of Tesla vehicles in its state, is a contender in the race for the factory. It appears that the state’s leadership might be inclined to change what Governor Rick Perry referred to as “antiquated” car dealer franchise laws, in an appearance on Fox Business News.

The city of San Antonio remains under consideration as does Lubbock with its access to West Texas windpower, according to numerous reports.

Arizona: Despite opposition from auto dealers, Arizona’s state legislature is considering a bill to allow direct sales, according to Phoenix Business Journal

Tucson Mayor Jonathan Rothschild told The Arizona Daily Star that a potential site has been selected by the city. A state and city tax incentive package will be offered. The same article reported that the city of Mesa’s Mayor Scott Smith, now running for Arizona Governor, sent Tesla CEO Elon Musk an invitation to visit.

According to the Phoenix Business Journal, Tesla could benefit from the same state incentives offered to Apple’s new plant in Mesa, AZ, namely, “Gov. Jan Brewer and business groups support a new bill that would eliminate taxes on energy used by manufacturers.” Arizona’s offer could include a 5 percent property tax rate as well. “State lawmakers are also considering another new bill that would give income tax breaks for companies whose manufacturing facilities are powered by solar and renewable sources,” according to the report. 

New Mexico: Albuquerque Journal reports that New Mexico Governor Susana Martinez, a Republican, was “considering a special legislative session to work up an economic package for a possible Tesla factory.” According to the report, “Democratic legislative leaders said a special session to woo Tesla would be unprecedented, and appropriate only if New Mexico has evidence that it was Tesla’s pick.” In 2007, Albuquerque was close to being the site of the Tesla Roadster factory.

Nevada: Last month the Reno Gazette reported that Tesla execs have been looking at sites around the northern part of Nevada. This month, Northern Nevada is the “front runner” according to Phoenix Business Journal. The Journal goes on to report that “the Reno area in northern Nevada is the odds-on favorite to land the Tesla plant,” citing multiple business and political sources in Phoenix. The Reno-Stead Airport has been suggested as a possible site with its thousands of acres for development and rail access.

Three reasons why Tesla should choose Texas

As GTM’s Katie Tweed reported, there is a legislative effort in a number of states to shut down Tesla from selling directly to the consumer through its own stores and forcing the company to follow laws that prohibit factory-owned dealerships. New York has agreed to allow the electric vehicle maker to keep its five company-owned outlets open, but permits no further expansion. There’s a deal being made in Ohio to limit the number of Tesla outlets to three.  There is still an acrimonious conflict in New Jersey. Tesla has had favorable court decisions in Massachusetts and the EV pioneer has also won a round of court skirmishes in Minnesota.

If direct sales are banned in a state, customers can visit Tesla “galleries” but aren’t allowed to talk price or take a test drive.

Texas went through a two-month effort to pass bills in its legislature that would allow Tesla Motors to sell electric cars directly to consumers. The effort died last summer after lawmakers failed to vote on the issue before adjourning. The legislature will not meet again until 2015. 

Texas Gov. Rick Perry, a recipient of more than $300,000 in traditional car dealer campaign contributions, bucked his donors a bit and said in an interview with the Fox Business channel that “Tesla’s a big project. He told Maria Bartiromo, “The cachet of being able to say we put that manufacturing facility in your state is hard to pass up.” Perry added that he thinks “the pros of allowing this to happen outweigh the cons, and that doing away with the ban on direct sales is a “conversation that is worth happening.”

Giga Factory Facts and Figures

  • Tesla announced a $1.6 billion convertible debt offering. Tesla looks to offer $800 million of convertible senior notes due in 2019 and $800 million due in 2021 to build the world’s largest battery factory.
  • Elon Musk predicts that the new factory will produce batteries for 500,000 vehicles by 2020.
  • Tesla expects to send the kilowatt-hour price of batteries down by 30 percent.
  • The plan is for construction to start in 2014, with production beginning in 2017.
  • The facility will hold more than 6,000 workers in 10 million square feet of factory space.
  • The plant will provide recycling capability for old battery packs.
  • Musk also said that Panasonic, currently supplying hundreds of millions of cells to Tesla, would likely join in on the new factory but no commitments have been made.

Here’s a rendering of the proposed plant:

Some Q4 Tesla Financials

Tesla had revenues of $615 million at a 25.2 percent gross margin in Q4. The firm sold a record 6,892 Model S vehicles during the period — expecting to ship 35,000 Model S units in 2014, representing more than 55 percent growth over 2013. Production is expected to increase from the current level of 600 cars per week to about 1,000 cars per week by the end of the year. First-quarter production is expected to be about 7,400 vehicles. Battery cell supply will continue to constrain production in the first half of the year, but will improve significantly in the second half of 2014.

Other Tesla News

Last week, the U.S. National Highway Traffic Safety Administration (NHTSA) closed an investigation into fires involving Tesla’s Model S and road debris piercing the battery-pack.

The NHTSA report reads, “Tesla’s revision of vehicle ride height and addition of increased underbody protection should reduce both the frequency of underbody strikes and the resultant fire risk. A defect trend has not been identified. Accordingly, the investigation is closed.”

greentech mediaGreentech Media (GTM) produces industry-leading news, research, and conferences in the business-to-business greentech market. Our coverage areas include solar, smart grid, energy efficiency, wind, and other non-incumbent energy markets. For more information, visit: greentechmedia.com , follow us on twitter: @greentechmedia, or like us on Facebook: facebook.com/greentechmedia.

Eric Wesoff's picture

Thank Eric for the Post!

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Clayton Handleman's picture
Clayton Handleman on Apr 3, 2014

Interesting article.  A comment about a subtlety.  Based upon a careful read of the Tesla blog post they are anticipating cost will drop 30% when volume ramps in 2017.  See the bottom of the first slide in their presentation.  They have said nothing about what they expect the costs to look like in 2020.  However,  reputable experts were predicting better than 50% cost reduction by 2020 before the public announcement of Musk’s Giga factory.

Bob Meinetz's picture
Bob Meinetz on Apr 3, 2014

Eric, I’ll believe Rick Perry when the conversation that’s “worth happening” results in some legislation. What are the other two reasons Tesla should choose Texas?

A brief reality check will show why all of this fantastic news for Elon Musk and Tesla is rotten news for renewables. Should Tesla be really able to sell 500,000 Model S sedans by 2020, those 85kWh battery packs will need 43 GWh of energy every night to charge. If the current price for utility-scale storage of $1.7m/MWh is halved, as it’s expected to, it will cost $38 billion just to provide storage to recharge Tesla’s electric cars – not including infrastructure.

That’s assuming that wind and solar can reliably deliver that much additional energy, a premise founded on the flimsiest of optimism. Without new nuclear any shortfall will result in greater dependence on natural gas and coal to power America’s transportation.

John Miller's picture
John Miller on Apr 4, 2014

Tesla has a very successful, but somewhat unique business model.  Almost half of their current sales revenues come directly (Ca. EV credits sold to other Automobile Manufacturers) and indirectly (Federal and State EV sales/purchase tax credits) from Government tax/financial support.  They also apparently want to develop a vertically (owned and operated) manufacturing supply chain model (all stages from materials & parts fabrication-thru-auto assembly-thru-marketing & sales).  As far as manufacturing their own batteries, the U.S./world appears to have very significant spare battery manufacturing capacity, but this factor is apparently inconsistent with their vertically own & operate business model.

As far as where Tesla will eventually locate their $5 Billion battery manufacturing plant, that depends on how much it’s worth to an individual State.  Part of their evaluation of where to locate the plant will of course include the level of tax relief/subsidies made available to Tesla and possibly other financial leverage (non-union labor, property & income tax exemptions, capital loan guarantee/support, in-state marketing rights, etc.)

Robert Bernal's picture
Robert Bernal on Apr 6, 2014

I hope there are soon 20 tesla’s, each doing their own vertically structured manufacturing. This would then require nuclear on an ever so apparent level!

Robert Bernal's picture
Robert Bernal on Apr 6, 2014

Another way of looking at it is in the conversion between oil and kWh. About 3,414 btu = 1kWh. A barrel of oil = 5.8 million btu or about 1,700 kWh. Half a million Tesla battery packs store about 43 million kWh. That would displace some 25,000 barrels of oil for each (collective) 200 miles driven. Electrics are about 3 to 4 times as efficient… Consider losses incured from charging and resistance in the powerline (so I assume up to 3x as eff). If the average miles are 12,000/year, then 4.5 million barrels displaced per year.

I hope to see ALL the oil displace by electrics and ALL the coal displaced by wind, solar and (especially) nuclear before altered biospheres displace us!

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