Tesla taps Nevada for $5B car battery 'gigafactory'

Coming to Nevada's high desert: A massive, $5 billion USfactory that will pump out high-tech batteries for hundreds of thousands of electric vehicles.

That's assuming state leaders deliver on the economic incentives they packaged to entice Tesla Motors to Nevada rather than four other states competing for the factory and the economic jolt it promises to bring.

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Tesla has chosen an industrial park outside Reno to build its battery "gigafactory," a person familiar with Tesla's plans said Wednesday. The person spoke on condition of anonymity because no official announcement had been made that was scheduled for Thursday afternoon at Nevada's Capitol.

Tesla's choice of Nevada over California, Texas, Arizona and New Mexico takes it a big step closer to mass producing an electric car that costs around $35,000 US and can go 200 miles on a single charge.

The new factory will give Tesla an advantage over competitors, mainly General Motors Co. and Nissan Motor Co., which also are racing to build a relatively affordable electric car with a range that lets people take most daily trips without recharging. Tesla has shown that hundreds of miles of range is possible, but the sales volume and technology aren't available yet to get the cost below the $70,000 base price of the Model S luxury sedan Tesla sells now.

Hopes to be running for 2017

The gigafactory, with a projected 6,500 jobs and 10 million square feet equivalent to about 174 football fields would bring the cost of batteries down by producing them on a huge scale. Tesla wants the factory running by 2017 (when it has promised the new, relatively affordable Model 3) and producing batteries for about 500,000 vehicles annually by 2020.

At present, demand for electric vehicles is small.

Through August, automakers have sold just over 40,000 fully electric cars this year, up 35 per cent from a year ago, according to the auto website Edmunds.com. Factoring in plug-in hybrids, electric vehicles still account for just 3.6 per cent of all new car sales, a slight drop from last year. Still, government fuel economy standards that will require new cars and trucks to average 54.5 miles per gallon are expected to drive sales.

Nevada Gov. Brian Sandoval's office wouldn't comment Wednesday on the gigafactory news, saying only that he would make a "major economic development announcement" Thursday. A spokesman for Tesla Motors Inc., based in Palo Alto, California, said company representatives would be at the Capitol in Carson City for the announcement but offered no other details.

Sandoval has declined to discuss incentives he has offered Tesla. Based on CEO Elon Musk's public statements, the incentives likely total at least $500 million. The governor would have to call a special session of the Legislature to approve tax breaks, grants or other incentives of that magnitude.

Nevada economic development laws allow several incentive programs, including abatements on personal property, sales and business taxes, and sales tax deferrals, according to the Legislative Counsel Bureau.

Tesla has done site-preparation work at the Reno Tahoe Industrial Center but had not publicly committed to building in Nevada, instead waiting as other states put together their best packages of economic incentives.

This spring, Musk announced that the company would take the unusual step of spending millions to prepare sites in two states or perhaps even three before choosing a winner.

The person familiar with Tesla's plans told The Associated Press a second site still will be prepared, in case Nevada is unable to deliver the incentives it has promised, or possibly to build a second factory.

Tesla will pay about half of the Nevada factory's cost. The other major investor is Panasonic Corp., which will manufacture the lithium-ion battery cells and invest in equipment.

Competition for the factory has been intense among the states, which bid up their incentive packages in private negotiations with Tesla.

Climate, low tax rates enticing

Some politicians in California, where Musk founded not just Tesla but PayPal and commercial space exploration firm SpaceX, made winning the project a point of pride.

"Tesla was using their business savviness to get states to compete against one another, to try to negotiate the best deal possible. It's just that I felt California had the inside track given our history of working in partnership with Tesla in California," Republican state Sen. Ted Gaines said.

He called Tesla's decision a "clear indictment of our business climate."

Brook Taylor, a spokesman for Democratic Gov. Jerry Brown's economic development agency, declined to comment on Tesla's decision, instead sending a written statement that California will work with businesses, including Tesla, "that want to grow here."

Nevada beat competing states because it combined several must-haves.

Aside from low tax rates and business-friendly workplace laws, Nevada offers plenty of sun and wind to generate "green" power, and relative proximity to the company's car manufacturing plant in the San Francisco Bay Area.

The industrial park 20 kilometres east of Reno also is near a deposit of lithium, an essential element to produce the battery cells.

Lance Gilman, principal and director of the Reno Tahoe Industrial Center, said he had not been told of a final decision.

"It would be the most exciting news of the century to me," he said.