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

Arizona introduces a bill to entice Tesla Motors to build its Gigafactory in the state. Here's what investors need to know.

Mar 23, 2014 at 1:23PM

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.

Screen Shot

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.

Tesla will keep proving the critics wrong
Tesla Motors has achieved what many thought impossible for a start-up automaker. It's this type of drive to challenge even the most powerful auto giants earned Tesla its spot as one of The Motley Fool's top growth stock picks of 2011. Motley Fool co-founder David Gardner has proved the naysayers wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. Now you can get his scientific approach to crushing the market as well as his six stock picks for ultimate growth in 2014, in this free report today. Click here now for free access.

Tamara Rutter owns shares of Tesla Motors. The Motley Fool recommends and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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