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Reno Is Tesla's First Choice As A Gigafactory Site - But Elon Musk Sets A High Price Tag

This article is more than 9 years old.

Tesla Motors made it official on Thursday: it has broken ground outside Reno, Nevada, for the first potential site of its $5 billion gigafactory plant.

Tesla CEO Elon Musk disclosed the location in a letter to shareholders that accompanied Tesla's second-quarter results. It has long been rumored that Reno stood the best chance of becoming a gigafactory semi-finalist. And in fact, Musk said that Tesla actually broke ground at the Reno location last month.

Musk was careful to say that the site "could be" the final location for the gigafactory, which will produce battery packs to power Tesla's upcoming Model 3 car, due later in the decade.

Wrote Musk: "Consistent with our strategy to identify and break ground on multiple sites, we continue to evaluate other locations in Arizona, California, New Mexico and Texas. The final site for the first Gigafactory will be determined in the next few months, once we have full visibility and agreement on the relevant incentives and processes for enabling the Gigafactory to be fully operational to meet the timing for Model 3."

Tesla says the multi-plant approach is "prudent." For one thing, the Model 3 will be the company's third vehicle, and is planned to sell at a far lower price than its original car, the Model S. (Tesla also is developing a crossover, the Model X, due in 2015.) As Musk puts it, "Any potentially duplicative investments are minor, compared to the revenue that could be lost" if the Model 3 is delayed by problems at the primary Gigafactory site.

During a conference call with analysts Thursday afternoon, Musk said that Tesla had "essentially completed the creating of the construction pad of the Gigafactory in Nevada," which is basically the cleared plant site, before the floor and frame of the plant goes up.

He said the company would be doing similar site preparation in one of two other states, although not naming them. "It makes sense to have multiple states going in parallel," Musk said. Before the next stage of pouring concrete, "we want to make sure things sorted out at the state level, (and that) incentives are there."

Earlier in the day, Tesla disclosed it had finalized an agreement with its Japanese battery partner Panasonic , which will play a major role in the Gigafactory.

The question of incentives could be a difficult one in a number of states, especially in light of the price that Tesla may ask. On the conference call, Musk said that it was possible that Panasonic could put up 30-40 percent of the cost, other suppliers 10 percent, and the winning state 10 percent -- which could mean a $500 million price tag, if the overall price is the basis for that percentage.

Said Musk: "We're not going to go for a deal that's unfair to the state or unfair to Tesla. We want to make sure it's compelling to all parties." In Nevada's case, "the ball in the court of the governor and the state legislature."

As might be expected, news of the Gigafactory was front and center on the website of the Reno Gazette-Journal.

The paper features a wealth of data on the location of the initial Gigafactory site, which is called the Tahoe-Reno Industrial Center. It sits about 17 miles south of Sparks, a suburb of Reno. The 106,000 acre site has 30,000 acres that can be developed. There are already a series of tenants at the industrial center, including Wal-mart, Tire Rack and PetSmart. The site is easily accessible by Interstate 80.

Eventually, Tesla plans a 10 million square foot factory -- five times bigger than most conventional automobile assembly plants. The Gigafactory would employ about 6,500 employees by 2020, and is set to open around 2017.

Reno has been considered the top candidate since Tesla announced that it was looking at four Southwestern states for the factory (it has since added California to the list). One reason is its location, a half-day's drive from Tesla's Fremont, Calif., factory, as well as its headquarters in Palo Alto, Calif. The state, which is not known for industry, has put on a push to attract name brand investors the past few years.

Reno has an Apple iCloud data center, and local officials are eager to land more work from the computer maker. The Tesla announcement undoubtedly will help with recruitment efforts, although Reno now actually needs to make sure it wins the factory, not just become the first finalist.

The biggest question now is where California stands in the Tesla contest. Originally, California was left off Tesla's finalist list, only to have its governor and members of the legislature put on a full-court press to be considered. Indeed, Tesla had said it would announce the first Tesla site in June, only to push that disclosure off for a month.

The extra time could be to see whether California can afford to get into the race, and whether the needed environmental permits can be obtained on Tesla's time frame. Musk stressed a sense of urgency on Thursday.

"Time is important here. The faster we can do this, the faster we can reduce carbon output and stave off a catastrophe," he told the analysts.

 

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