Tesla Motors Inc. Gigafactory: This $5 Billion Carrot Might Whip Two Protectionist States In Line

In good news for investors, some lawmakers in Arizona and Texas are rethinking their positions on banning Tesla's direct sales model.

Mar 25, 2014 at 11:24AM

It's too bad for Tesla Motors (NASDAQ:TSLA)that New Jersey doesn't top the charts when it comes to solar-power-friendly weather and is located across the country from the company's Fremont, Calif., electric vehicle manufacturing plant. Otherwise, Tesla could dangle the opportunity to be home to its massive lithium-ion battery "gigafactory," with its estimated $4 billion-$5 billion construction cost and up to 6,500 jobs, in front of the Garden State, too. The gigafactory carrot seems to be doing wonders in convincing lawmakers in the other two states -- Arizona and Texas -- where Tesla's direct sales model is banned to rethink their positions.  

Tsla Giga

 Source: Microsoft Office Clip Art plus this writer's embellishments.

Arizona and Texas rethinking their "keep out" positions
You might know that auto dealer associations across the country are crying foul at Tesla's direct auto sales model, as they try to protect their middleman turf. On March 11, New Jersey joined Arizona and Texas in banning Tesla from selling its vehicles to consumers via its retail stores. (Many states have laws on their books prohibiting auto manufacturers from selling directly to consumers, but the others haven't explicitly banned Tesla.)

New Jersey might soon find itself alone in this "keep out" stance. That's hardly surprising, now that Arizona and Texas are among the finalists, along with Nevada and New Mexico, to house Tesla's gigafactory.

Last week, an Arizona state Senate committee passed a measure to allow Tesla to sell its vehicles directly to consumers. It seems likely that the full legislature will approve the bill, as there's good cause to believe Tesla will favor locating its gigafactory in a state that allows its direct-to-consumers sales model. There aren't too many politicians who will want to be viewed as handicapping the state's chances of landing such a massive project. The bill is applicable only to electric vehicles, so it doesn't open a Pandora's box that would enable the major auto manufacturers to follow Tesla's lead.

On cue yesterday, Texas Gov. Rick Perry told Fox Business Network's Maria Bartiromo, "I think it's time for Texans to have a very open conversation about this and talk about the pros and the cons." Perry now appears to favor allowing Tesla's direct sales model: "I'm going to think that the pros of allowing this to happen are going to outweigh the cons." Given Perry's statements, and for the same political reasons I mentioned with respect to Arizona, Tesla seems to have a good shot at getting the green light in the Lone Star State, too.

It should be interesting to watch the offerings from the four states roll in as they court Tesla.

The gigafactory isn't Elon Musk's only "carrot"
Tesla reportedly plans to start constructing the gigafactory at the end of this year, so it won't be able to dangle this humongous incentive for long. But shareholders should remember that Tesla CEO Elon Musk has several bags from which he can pull out a carrot.

In addition to leading Tesla, Musk is also chairman of San Mateo, Calif.-based SolarCity, which he co-founded with his cousin Lyndon Rive. Additionally, Musk is CEO and chief technical officer of Hawthorne, Calif.-based SpaceX, which develops and manufactures space launch vehicles.

Tesla shareholders should view Musk's multiple roles -- as long as he doesn't spread himself too thin -- as a major positive. There is some good synergy between Tesla and SolarCity: the two companies partnered last year to develop batteries to store solar energy, and the gigafactory will supply batteries for this partnership. However, the benefits go beyond product synergy. Surely, Musk's connection to two other notable companies gives him a larger selection of carrots from which he might find just the right offering when dealing with specific political or other business issues going forward.

Foolish final thoughts
Tesla investors shouldn't be concerned about these direct sales model bans. The tide seems to have already begun to turn in favor of Tesla.

Granted, some lawmakers in Texas and Arizona are probably only changing their tunes because their states are competing to land the gigafactory. However, it seems likely that politicians in states other than those competing for the massive battery plant realize from this situation that Tesla is a more formidable economic force than they had figured. Given this factor, and what seems to be public (aka "voter") support for Tesla, lawmakers in states that prohibit automakers from selling directly to consumers will likely be more apt to pass measures similar to the bill making its way through the Arizona state Senate. 

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Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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