Tesla Motors Dangles a $5 Billion Carrot in Texas' Face

Tesla Motors (NASDAQ: TSLA  ) officially announced plans for its $4 billion-$5 billion Gigafactory to manufacture lithium-ion batteries for use in its all-electric cars. Tesla is directly investing $2 billion in the project, with the remaining cash coming from the EV maker's battery supply partners, including Panasonic. Tesla will fund its portion of the venture with cash from a $1.6 billion convertible bond. However, perhaps more interesting, is the fact that Tesla is considering Texas as one of four states now in the running for where the massive plant will be located. 

Source: Tesla Motors.

If Tesla were to build its Gigafactory in Texas, it would contribute billions of dollars and upwards of 6,500 manufacturing jobs to the Lone Star state. Importantly, this gives Tesla a serious advantage over the Texas Automobile Dealers Association, which, up to this point, has been successful in getting Texas lawmakers to ban the sale of Tesla cars in the state.

Giving Tesla the boot
Last year, Tesla lost a crucial fight with the Texas dealers group to sell its zero-emissions cars directly to Texans. Texas currently has strict regulations in place that forbid manufacturer-owned dealerships in the state. However, that could change now that Tesla's bringing a multibillion-dollar opportunity to the table. Perhaps the red star in Tesla's rendering above is a subtle jab at what the company really wants: Texas.

Source: Tesla Motors.

After all, being shut out of Texas is a major setback for the upstart auto company, particularly given the sheer size of the Texas market. Let's not forget that Texas is the second largest and second most populous state in the entire United States. On top of this, the Texas Auto Dealers Association spends millions of dollars each year lobbying for bogus laws that protect the big auto dealers from competition. This hardly seems fair, as this country was built on competition.

In fact, the Texas Auto Dealers group spent a whopping $2.5 million on legislative elections in Texas in 2012, according to a CNBC report. Not to mention, franchised dealerships generate significant amounts of sales tax for the various counties within Texas. Yet, instead of crying injustice in the corner, Tesla's visionary chief executive Elon Musk has come up with a better plan: Make Texas an offer it can't refuse.

Wake up, Texas! Tesla is an American company, creating American jobs -- and what's more American than Texas? The way I see it, this is a win-win for the state. Not only would the Gigafactory create more than 6,000 new jobs in the state, but allowing Tesla to sell its cars in Texas would mean Tesla investing "tens of millions of dollars" in the state to open new stores and service centers there. 

Shares of Tesla are trading at record highs this week amid wild optimism over the company's plans for a Gigafactory. However, things could get even better for Tesla shareholders if the EV maker's ploy for Texas works in its favor.

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  • Report this Comment On February 27, 2014, at 6:57 PM, caarecengi wrote:

    They need to advertise that the new Model X has a optional gun rack and cattle catcher to appeal to the average hunter in that state. Also, what better way to stop the invasion of our land from breaches in the southern border than a quiet 4WD SUV equipped with infrared sensors and a turret to shoot the border jumpers

  • Report this Comment On February 27, 2014, at 7:10 PM, deeageaux wrote:

    Tesla decision will be made this year on Gigafactory site selection.

    Texas state legislature will not meet till next year.

    Arizona , also a finalist, does not allow Tesla to sell direct either.

  • Report this Comment On February 27, 2014, at 8:09 PM, nonqual wrote:

    Under existing Texas codes,Tesla could have Musk Motors sites through out the state. Musk prefers whining as a victim to making the investments. No worries, in three years Tesla will be selling be selling half a million cars/year with only mall boutiques next to Victoria's Secret and Rangers, parachuting in to change wiper blades ( if Tesla ever solves the 12 volt battery issues.)

  • Report this Comment On February 27, 2014, at 8:28 PM, cobraman69 wrote:

    Alot has been written about air pollution being reduced by having more EVs on the roads, but how significant would sound pollution be reduced if most of the vehicles on the roads were EVs? Would it be significant?

    Could significant amounts of money be saved with less sound pollution? Would that mean less sound barriers and the expense that goes along with them all along the nation's highways? I tend to think it would be rather significant.

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Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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