December 10, 2008 - Tesla Motors, San Jose CA

Tesla plant in San Jose could be delayed by Big Three auto bailout

Tesla Motors' plans to build an electric-car factory in San Jose could be delayed by the proposed Big Three auto bailout, a high-ranking Tesla executive said Wednesday.

That's because the government money Tesla needs to build its $250 million factory off Highway 237 in North San Jose may be headed for Detroit to rescue General Motors and Chrysler from bankruptcy.

But the situation remains fluid, and Tesla remains hopeful that the $450 million in loans it has requested will be granted, Diarmuid O'Connell, Tesla's vice president of business development, said in a telephone interview from Washington, D.C.

The U.S. House approved the bailout late Wednesday, but strong Republican opposition in the Senate could scuttle it. Or Congress could restore any bailout money, which would be drawn from the $25 billion fund initially set up to improve auto fuel efficiency.

Tesla's proposed plant is to build an electric four-door sedan that's half the price of the $109,000 electric Roadster it's now making in England. The factory was slated to open in late 2010 when it was announced by Tesla Chief Executive Elon Musk and San Jose Mayor Chuck Reed in September, but that date already got pushed back to mid-2011 when Tesla couldn't get financing and had to lay off some employees in October.

Tesla doesn't have an official position on the proposed $14 billion bailout, which is backed by congressional Democrats and the White House. But the company worries that Congress "is mortgaging the future to address the crisis of the present," O'Connell said.

Congress authorized a $25 billion Advanced Technology Vehicles Manufacturing Incentive Program in 2007 to accelerate the construction or retrofitting of auto plants that would build high-mileage vehicles, and it appropriated the money for the program in September of this year. Startups such as Tesla — as well as Ford, GM and Chrysler — sought funds from the program.

Tesla has asked for a $350 million loan to help it build the factory to manufacture its $57,499 Model S in San Jose, and a $100 million loan to expand its electric-motor-and-battery powertrain operation. The Department of Energy, which manages the fund, had said it would start awarding money as soon as Dec. 31.

But that was before abysmal auto sales in October and November brought the Detroit Three to the brink of failure. Congressional Democrats hoped to assist automakers from the $700 billion financial-industry bailout fund, but the White House insisted that the money come from the Advanced Technology Vehicles program.

A delay in Tesla's loans could mean a delay of its San Jose factory, Musk said Tuesday as he handed the keys to the company's 100th Roadster model to its new owner. The company would have to wait for the world's financial markets to recover, something that could take one to two years, he said.

O'Connell remains hopeful, he said, because of a promise by House Speaker Nancy Pelosi to quickly restore the Advanced Technology Vehicles fund if it is spent bailing out the Big Three.

"We will not permit any funds to be borrowed from the advanced technology program unless there is a guarantee that those funds will be replenished in a matter of weeks," Pelosi said last week.

"We do take comfort in the speaker's position," O'Connell said.

In a Dec. 5 letter to Pelosi, Senate Majority Leader Harry Reid of Nevada, the minority leaders of the U.S. House and Senate, and the mayors of San Jose and San Francisco argued against a diversion of the advance-vehicle funds.

Applying those moneys "toward operating costs of the auto manufacturers will stunt innovation, stifle economic growth and stall our national transition toward low-emission vehicles," Chuck Reed and Gavin Newsom wrote.

A diversion could threaten Tesla's plans for its 750,000-square-foot, 1,000-employee factory in San Jose, they added. Other local companies — such as Palo Alto's Better Place, which has plans to build an electric-vehicle infrastructure in the Bay Area, Israel, Hawaii and elsewhere, and Coulomb Technologies, a San Jose company that builds chargers — also could be affected, they said.

One benefit of the debate over the auto industry, O'Connell said, is that it has ''raised the profile of companies such as Tesla Motors.''

"It has raised some fundamental questions about what kind of auto industry we want to have in the future,'' he said.

Original Story - Mercury News

Update Story January 29, 2009

Plans for Tesla auto plant in San Jose appear doomed

Tesla Motor's plans to build a 500-worker auto assembly plant in San Jose appear to be dead.

The company failed to secure $100 million in venture financing for the factory in the fall, and now realizes that the $450 million it hopes to get from government loan programs favor retrofitting existing buildings rather than constructing new ones in green fields, company spokeswoman Rachel Konrad said Thursday.

"I'm disappointed somebody else is going to get a chance at the manufacturing facility for the sedan," said San Jose Mayor Chuck Reed, who had hoped the plant would be a cornerstone of his plan to make the city the capital of green technology.

Tesla could still relocate its headquarters, research-and-development facility and powertrain-assembly shop to San Jose from their current site in San Carlos, Konrad said. Those operations could account for an additional 525 jobs.

"We continue to work with them," Reed said.

City staffers are scurrying to find sites for the other Tesla facilities, said Michelle McGurk, a senior policy adviser for Reed.

The loss of the factory represents a major blow to San Jose, which has been touting itself as the epicenter of clean-technology companies and innovation. In announcing the deal last year, Reed said the company's 1,025 potential jobs would be crucial in meeting his goal of creating 25,000 clean-tech jobs within 2015.

Tesla has "not abandoned San Jose," Konrad said. But she said Tesla is now looking elsewhere in the Bay Area, as well as at abandoned aerospace facilities in Southern California, for the 500,000-square-foot building with high ceilings it will need for the factory.

Tesla continues to wait for government loans from programs promoting alternative-vehicle technologies to help defray the cost of building its factory and second electric car, the Model S. Those programs, Konrad said, favor companies with plans to retool existing buildings, or so-called "brown-field" sites.

Konrad said it remains unclear when the government will award those loans but added that Tesla still plans to have its Model S on the market by 2012. On Wednesday, U.S. Rep. Anna Eshoo, D-Palo Alto, and 18 other members of Congress sent a letter to new Energy Secretary Steven Chu urging "swift action" in approving Tesla's loan application.

The global financial crisis, which Konrad characterized as "economic Armageddon," has hit clean-tech companies hard, especially those that need financing to build factories or power plants.

Tesla's first car, the two-seat, $109,000 Roadster, went into production in 2008. The company has delivered 160 of them and has 1,100 people waiting for them.

That car is built at a Lotus factory in England. But Tesla sees itself as eventually emerging as a mainstream automaker, and that means having a factory of its own.

But this is the second time Tesla has backtracked on plans to build a factory.

In February 2007, Tesla and the state of New Mexico announced a deal to bring a 400-job factory to Albuquerque. The plant, which would have made 10,000 cars a year, was to be in operation by 2009.

But shovels never met soil, and in June 2008, California Gov. Arnold Schwarzenegger said he and state Treasurer Bill Lockyer had persuaded Tesla to build its factory in the Golden State. They offered training incentives plus a waiver of state sales tax on $100 million worth of equipment.

By September, Tesla had picked a location for the factory adjacent to the water-treatment plant at the intersection of Zanker Road and Highway 237 in North San Jose. The city offered a 40-year lease, with the first 10 years rent-free, for the vacant parcel.

Construction would mean 600 jobs and $40 million in wages, according to an analysis by city staff, and the facility ultimately would employ 525 people with an annual payroll exceeding $100 million.

In addition to assembling Tesla's Model S, a four-door mid-size electric sedan, the location was to serve as the home for the company's headquarters, its research staff and the drivetrain assembly operation.

Reed said he still considers his wooing of Tesla a good decision. "Very much so," he said. "But when we do this with whatever company, we try to minimize the risk."

In this case, he said, San Jose didn't put any money into the deal, and it offered land that was vacant.

Tesla's news Thursday came as the state's auto dealers announced the worst car sales in California since 1993.

Less than 1.5 million new cars and trucks were sold in California in 2008, down 23 percent from 2007. The decline has resulted in layoffs and the closing of dozens of dealerships statewide.

Update Story - Mercury News