September 16, 2008
Mercury News
By Matt Nauman
Tesla Motors and San Jose announced Wednesday that the city
has been tapped as the future home for the electric-car maker's
factory and new headquarters.
 Both
will be located on about 90 acres of land adjacent to the
water-treatment plant off Zanker Road near Highway 237 in
North San Jose. That property is jointly owned by San Jose
and Santa Clara, whose city councils still need to approve
the terms of the deal.
For San Jose, the deal not only is a public-relations coup,
it also brings new jobs and expands the city's tax base. For
Tesla, the move signals the automaker is moving beyond a rocky
start and toward its goal of producing zero-emission cars
in volume.
"We're the world center of innovation in clean tech,"
said San Jose Mayor Chuck Reed on Tuesday, adding that the
city wasn't even on Tesla's short list of potential factory
locations when it said in late June that it would build its
plant in the Bay Area. "The team put a really big effort
into it."
Said Ze'ev Drori, Tesla's chief executive: ?"We love
San Jose. It's a good deal for both parties."
Tesla chose San Jose for numerous reasons. It's a Silicon
Valley company, and it wanted its executives and engineers
to be near its factory. Drori mentioned the skilled high-tech
workforce, especially those familiar with electronics and
software. Also, the company expects many of its buyers to
be Californians; its first two showrooms are in Menlo Park
and Santa Monica.
The carmaker also was confident about San Jose's expertise
in quick permitting and clearing obstacles for new businesses,
Reed said. And while San Jose has been active in attracting
solar companies to locate in the city, "this is a much
bigger deal because of what it is and the technology it represents,"
Reed said. "It's not just another solar company. It's
an electric car, which has tremendous upside for us, and a
whole new area of job potential."
Reed said the city would sign a 40-year lease with Tesla
and would provide the first 10 years rent-free. In years 11
to 20, Tesla will pay $1.5 million a year for the property,
and then see rent increases of 2 percent a year in years 21
to 40. Tesla will pay the usual development fees, Reed said,
but the city will look for a way to rebate them over time
once tax revenues start flowing in from the company.
California also is pitching in to make the Tesla factory
a reality.
This summer, when Gov. Arnold Schwarzenegger announced that
Tesla would build its factory in California, the state said
it offered to waive the sales tax on $100 million worth of
equipment.
California actually will purchase the equipment for the assembly
plant and lease it to Tesla, which will not
have to pay sales tax on it once Tesla buys the equipment.
That will save Tesla about $8 million on $100 million worth
of equipment. The company also is eligible for at least $1
million in state training funds.
Closer to home, a study released last week by San Jose said
the plant could generate 516 direct or indirect jobs, and
the headquarters would employ 525 people. Combined, the city
said, the total annual payroll would exceed $100 million.
The study also said construction of the new plant would result
in 600 jobs and $40 million in wages. Tesla will pay for the
factory through a $150 million loan guarantee from the U.S.
Department of Energy as well as with a forthcoming funding
round of $100 million. The city said the plant
Tesla Motors plans San Jose factory
itself would generate an estimated total economic output of
$2.5 billion a year, from the cars and parts it makes.
Reed said that property and other taxes from Tesla would
put an estimated $600,000 a year into city coffers. Santa
Clara will see tax revenues as well.
All of which is welcome news in Silicon Valley, which has
witnessed rounds of layoffs in the last year, particularly
in the high-tech sector.
"Economically, any time you have 1,000 new jobs move
into a city it's something to celebrate, especially nowadays,"
said Pat Dando, president and chief executive of the San Jose
Silicon Valley Chamber of Commerce and a former San Jose vice
mayor. "It's a great win for San Jose."
Dando praised Reed and his team for their effort in landing
Tesla.
"That's exactly the bold, progressive leadership a mayor
has to show today," she said.
Drori, who described the negotiations as "rather intense,"
said San Jose beat out Vacaville. He noted that if the deal
with San Jose should fall through, Vacaville will get the
factory, but not Tesla's headquarters.
The San Carlos electric-car company, chaired by PayPal co-founder
Elon Musk, said previously it would build its first factory
in New Mexico. But it backed out of that deal after delays
with its first model allowed California to put together a
package of financial incentives to lure it back. On June 30,
Tesla announced its intention to build a factory in the Bay
Area.
Tesla's first car, a two-seat electric called the Roadster,
went on sale this summer. The company said it has delivered
27 cars, which are being built at a Lotus factory in England.
It has begun installing a revised transmission and will ramp
up production from four to 10 cars a week. By March, it will
be making 40 cars a week.
While the Roadster, priced at $109,000, is destined to remain
a niche model, Tesla has much more mainstream plans for its
Model S sedan, to be built in San Jose. That car, which is
expected to cost $50,000 to $60,000, could see annual production
numbers of 20,000, Tesla says. It will be an all-electric
four-door model.
Reed expressed confidence in Tesla, but acknowledged that
"we can never be 100 percent sure" that the company
will succeed.
"Our exit strategy is that we're leasing them the land,"
he said. "If they don't make it, we'll have our land
back and probably a pretty nice building on it."
Drori said that going from the Roadster being built at another
company's factory to assembling its own car in its own plant
represents "another leap forward." That's why Tesla
is in the midst of a hiring campaign seeking people with automotive
experience, such as Mike Donoughe, a 24-year Chrysler veteran
who was recently hired as Tesla's engineering and manufacturing
executive vice president.
"We can approach people in Detroit and have the pick
of the litter, so to speak," he said. "We are an
amalgamation — the best that Detroit can offer and the
best of Silicon Valley put together."
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