Inside Arizona's Bold Move to Win Tesla Motors' Gigafactory

Four states are now in the running to become the site location for Tesla Motors' (NASDAQ: TSLA  ) $5 billion lithium-ion Gigafactory. Arizona, Texas, Nevada, and New Mexico are all fighting for a chance to bring billions of dollars and upwards of 6,500 high-paying jobs to their respective states. However, Arizona may have taken the lead this week as a state Senate panel approved a bill that would allow Tesla to bypass auto franchise laws in the state.

The final four
Tesla Motors is locked in brawls with auto dealers in certain states that say Tesla is operating outside the law by selling its all-electric cars directly to consumers. New Jersey joined Texas and Arizona last week to become the third state to prohibit Tesla's direct sales model. On March 11, Gov. Chris Christie's administration unanimously voted to ban direct car sales in the Garden State, thus passing a rule that will force Tesla to stop selling its cars in New Jersey as soon as April 1.

Nevertheless, New Jersey is still small potatoes compared with Texas and Arizona, which both have much larger auto markets. Perhaps, more importantly, Arizona now appears to be reversing its stance on the dealer-vs.-Tesla issue. "Tesla Motors would be allowed to sell cars in Arizona without establishing a dealer network under a bill approved by a state Senate committee Wednesday," according to the Associated Press.

Source: Tesla Motors.

While the bill is reportedly unrelated to Tesla's plans for a multibillion-dollar Gigafactory, the timing couldn't be better. Arizona is one of the four finalists vying for Tesla's massive lithium-ion battery plant. Moreover, it's not likely that Tesla would choose to invest $5 billion in a state where it's direct sales model isn't welcome.

In fact, Tesla's vice president of business development told Bloomberg, "The issue of where we do business is in some ways inextricably linked to where we sell our cars." Arizona seems to be taking that to heart. The updated Tesla sales bill in Arizona would let companies sell cars directly to consumers under two conditions: First, said company must only manufacture electric vehicles. The company must also operate a service center in the state, according to the AP.

Supporting American innovation
Unlike the century-old franchise laws that protect auto dealer cartels, these stipulations are rational and fair. Tesla should be able to sell its cars directly to consumers in the United States, because unlike traditional auto dealers, Tesla doesn't have pre-existing franchises that could be hurt because of this direct sales model. Not to mention, as Tesla chief executive Elon Musk explains, "Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars."

Ultimately, Arizona's push to allow Tesla to sell its cars in the state certainly puts it ahead of Texas in the race for Tesla's Gigafactory. However, the bill still needs to go through the full Senate before Tesla is granted access to sell its cars in the state.

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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 23, 2014, at 2:03 PM, StanO6 wrote:

    "While the bill is reportedly unrelated to Tesla's plans for a multibillion-dollar Gigafactory"


  • Report this Comment On March 23, 2014, at 2:36 PM, nonqual wrote:

    "Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars."

    That's a specious argument; Musk could set up electric only franchisees. He doesn't want to spend the money. Outside of California, Tesla has minimal investments in mall store fronts and service centers in rented industrial parks. If things don't work out, Tesla will be another fly by night outfit.

  • Report this Comment On March 23, 2014, at 4:23 PM, strben wrote:

    Tesla is smart... and here to stay!

    Tesla's direct sales method will have no more effect on existing car dealers then a new burger company selling direct to public will have on existing McDonald's franchises.

    I would be ashamed to do anything to slow progress of a new startup that's stamping "Made in America" on their clean product and trying to sell at home and around the world.

    Arizona's Senate panel got smart. I hope the rest of AZ Gov't., NY, Ohio, Texas, Virginia and the others are paying attention.

  • Report this Comment On March 23, 2014, at 7:04 PM, timlonely wrote:

    Let AZ and maybe TX change their law to allow Tesla to sell directly to the public with this giga factory. AZ has too many crazy law and to me doesn't deserve to be the future home of the giga factory. TX is too far away from Fremont in addition to having tornadoes. Nevada is the best location because it's closer to CA and to the huge lithium deposit discovered in Wyoming.

  • Report this Comment On March 23, 2014, at 10:45 PM, jameshall69 wrote:

    Same bias pumping material rolled out by tamara rutter as we see most weeks. Between this author and daniel sparks the other Tesla PR employee that uses Motley Fool to pump the stock, there is an article every few days. I thought Tesla had an advertising budget of zero.

  • Report this Comment On March 24, 2014, at 4:01 PM, DrDauger wrote:

    Consumer Reports named the Tesla Model S the best car you can get for the money:

    doubling down on CR's highest ever rating for the car last year. Confirmation like this, external to the Fool, too numerous to post here indicates there really is something good going on.

    I am a Model S owner for over a year and 16k miles, and I can tell you it puts all other cars to shame. My previous car, a BMW M3, clearly demonstrates the height of 20th century gas car tech, but today every time I drive the M3, or any other car that uses gas, I wonder how we lived with such noisy, smelly, jiggly, lurchy, overcomplicated jalopies whose fundamental flaws keep service shops in business.

    I keep my M3 for my waning nostalgia, the same way I would appreciate a 19th century steam engine, but the Model S is how I experience the future, and it is great.

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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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