Tesla's 'Gigafactory' sets off 4-state bidding war

• Tesla%27s announcement that it will build a 6%2C500-job battery plant sets off a bidding war
• The four states it has designated as finalists likely to pile on freebies to close the deal
• Will taxpayers accept huge cost of incentives%3F

Tesla Motors has set off a bidding war among four states wrangling to become the site of the electric car maker's proposed giant battery plant.

With the company's high-tech sheen, projected investment of $4 billion to $5 billion and planned 6,500 direct jobs, Tesla's "Gigafactory," as the company calls it, is one of the biggest economic development plums on the horizon.

"It is probably the most attractive project out there right now for any state," says Dennis Cuneo, a former Toyota senior vice president who now consults for automakers seeking new sites.

In releasing some details about the plant late last week, the luxury electric carmaker named Nevada, Arizona, New Mexico and Texas as finalists. Economic development officials, typically nonstop talkers in boasting about their states, were cautious about discussing possible deals after Tesla singled them out.​

The four apparently were chosen as finalists in part because they have climate and terrain suited for Tesla's plan to power the factory largely with a sprawling farm of solar panels and wind turbines. The plant will need up to 1,000 acres, or close to 2 square miles, according to Tesla.

The plant is intended to make lithium-ion batteries on a scale that will bring down their costs significantly. That is key for Tesla's plan to develop a mainstream electric car for the mass market. To do so profitably will require significantly lower costs for battery packs.

The plant is planned to have the capacity to make batteries for up to 500,000 cars a year plus supply other users, such as SolarCity, which plans to make emergency power storage units. Tesla CEO Elon Musk also is chairman of SolarCity.

For now, though, Musk seems intent on driving a hard bargain. Disclosing the names of the four states in contention apparently is aimed at driving the best possible deal from one. With the "pizzazz factor" of billionaire Musk and a connection to high-tech electric cars, incentives being laid out by states could reach new heights — including $200 million to $400 million for site infrastructure and worker job training, and $300 million to $600 million in tax breaks, Cuneo estimates.

Marketing considerations could figure in the choice, too. Tesla has mounted an aggressive effort to win exemptions from state franchise laws to sell cars directly to the public rather than through independent dealers. Texas rebuffed the Tesla effort there last year. As part of a winning deal, Tesla might demand the state change its laws to take dealer middlemen out of the equation.

Also, sales of Tesla's current product, the Model S luxury sedan, 6,892 in the fourth quarter of 2013, have been concentrated in wealthy, mostly liberal enclaves on the East and West coasts. Picking Texas or Arizona for the plant might help Tesla break through in a red state market.

In an era when state and federal budgets are tight, huge outlays for Tesla could provoke resistance. Also, the success record for battery plants and other alternative power ventures has been mixed. But the prospect of 6,500 jobs is a powerful draw, and winning one such project can be leveraged into others. Alabama, for instance, offered incentives to attract a Mercedes-Benz plant in Vance, and the state now also has plants for Hyundai, Honda and Toyota.

Here's how the four states stack up:

• Nevada. The Silver State is closest to Tesla's electric car manufacturing plant in Fremont, Calif., south of San Francisco. The Reno Gazette-Journal reports that a site at the Reno-Stead Airport is under consideration.

"Tesla is an exceptional company, and we are honored to be included in their list of finalists," said Steve Hill, director of the Governor's Office of Economic Development. "Our office has been working with the regional development authorities and local governments to highlight what Nevada offers: a skilled workforce, responsive workforce development and training programs, exceptional quality of life, great schools, low operating costs, and a commitment ... to provide the climate necessary for innovative businesses to thrive."

• Arizona. Like Nevada, the state offers stretches of desert that would be perfect for Tesla's wind and solar farm. But beyond that, the state's fiscal conservatives might not be as interested in a big package of taxpayer-funded incentives. State economic officials did not respond to requests for comment.

• New Mexico. Tesla has some familiarity here. Before it settled on manufacturing in the former joint General Motors and Toyota factory in California, it had planned to make its cars in New Mexico. The state's officials still would love to land a deal.

"Gov. Susana Martinez, state and local leaders greatly admire Tesla. We are believers in the company's vision and philosophy," says Jon Barela, secretary of the New Mexico Economic Development Department, in a statement. "This is an incredible company that is changing the world for the better. We are ecstatic that New Mexico is a finalist for this phenomenal project."

• Texas.The Lone Star State is probably the most interesting choice. It already has Toyota and General Motors truck plants, a diversified economy and is close to the huge automotive manufacturing infrastructure in Mexico. Plus, Gov. Rick Perry has aggressively sought out new businesses.

Lucy Nashed, a spokeswoman for Perry's office, wouldn't address Tesla's plant directly, but talked up Texas' low taxes and skilled workforce "that is ready to fill any employers' needs."

Interestingly, Tesla is rolling out its bold battery plan at a time when the auto industry is swimming in battery-making capacity. The Energy Department offered millions in loans at the start of the Obama administration to companies to expand battery production, aiming to make the U.S. a world leader in electric-car making. Electric car sales have grown, but hardly are on fire, so much of battery capacity is idle. "We have empty battery plants all over Michigan," says Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, Mich.

But Tesla uses a different kind of battery design. And few want to bet against Musk, having made successes out so far out of electric cars, solar energy and rocket-launching companies (he also is CEO of SpaceX, which is sending missions to the International Space Station).

If Musk gets his way, he will also be a battery tycoon. And he is about to pick a state to help him earn that crown.