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Tesla Motors plans to build Southern California factory

LOS ANGELES – Amid the auto industry’s worst decline in decades, Tesla Motors Inc. said this week that it would build its all-electric sedan in Southern California, a possible boon to the sagging local economy.

Elon Musk, chairman and chief executive of the San Carlos, Calif., startup, made the announcement as he unveiled the prototype of its new vehicle. The $57,400 Model S is a sleek four-door with a range of up to 300 miles on a single charge.

Tesla hopes to build 20,000 of the sedans per year by mid-2012.

Musk, who co-founded PayPal and is also CEO of Hawthorne, Calif.-based rocket-ship maker SpaceX, declined to name the city that would get the plant.

“We have a term sheet on a location,” Musk said at the event. “But we can’t divulge it until the contract is finalized.”

Tesla has a history of not closing similar deals. The carmaker had originally planned to build the Model S plant in New Mexico, as Gov. Bill Richardson had promised it tax credits and other incentives as well as a commitment to buy 100 vehicles.

But Tesla, wooed by California Gov. Arnold Schwarzenegger, said in September that it would instead build the factory in San Jose, where it would receive tax credits and a free 10-year lease on a city-owned lot.

Although Tesla now says it’s setting up shop in Southern California, San Jose still hopes to retain at least some business from the Silicon Valley company, Mayor Chuck Reed said. He said that Tesla still might put its research-and-development division and corporate headquarters in San Jose, which would allow the city to hang on to about 500 out of what he estimated were 1,000 potential jobs.

“The plan was to do everything in one location,” Reed said. “But that plan fell apart when the credit markets collapsed.”

With private fundraising options essentially frozen – Tesla was recently unable to complete a $100 million round of venture funding – it has turned to low-cost federal loans as its best alternative.

The company has applied for $400 million in government loans, which it says it needs to get the plant off the ground and the Model S fully developed. But because the competitive federal programs favor projects situated on previously used industrial sites (so-called brownfields) rather than new construction, Musk said it would be in the company’s best interest to find such a location.

“We did a review, and we just don’t have a 500,000-square-foot empty building with 24-foot ceilings,” said Reed, pointing out that Southern California, with its glut of abandoned aircraft factories, is rife with such spaces.

Musk took pains to point out that the car would be eligible for a $7,500 federal tax credit for electric vehicles, reducing the net price to $49,900, and that its operating cost would be low because it runs on electricity rather than gasoline.

Tesla is competing with several other companies to deliver the first mass-produced electric or plug-in electric sedan to consumers.

GM plans to begin selling its plug-in hybrid Volt in late 2010, and Fisker Automotive Inc. said it would hand over the keys to its $87,900 Karma sedan early next year.


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