Tesla to build electric car plant in San Jose City offers firm 89 acres rent-free for its first decade

SAN CARLOS, CA - JUNE 30: California governor Arnold Schwarzenegger (R) and Tesla Motors Product Architect and Engineer Elon Musk look at a Tesla Roadster before a news conference June 30, 2008 at Tesla Motors in San Carlos, California. Governor Schwarzenegger announced that electric car company Tesla Motors will build a new manufacturing facility in California to manufacture its all-electric Tesla Roadster. The $109,000 2009 Tesla Roadster zero emissions vehicle is capable of traveling nearly 250 miles on a single charge and is capable of going 0-60 miles per hour in 3.9 seconds. (Photo by Justin Sullivan/Getty Images) less SAN CARLOS, CA - JUNE 30: California governor Arnold Schwarzenegger (R) and Tesla Motors Product Architect and Engineer Elon Musk look at a Tesla Roadster before a news conference June 30, 2008 at Tesla Motors ... more Photo: Getty Images Photo: Getty Images Image 1 of / 3 Caption Close Tesla to build electric car plant in San Jose 1 / 3 Back to Gallery

Luxury electric carmaker Tesla Motors announced Wednesday that it will build a $250 million factory in San Jose, a major coup for a city working hard to attract both manufacturers and green businesses.

Tesla plans to build its new $60,000 sedan at the site, which also will house the company's headquarters. The Tesla campus - on Zanker Road, just north of state Highway 237 - will employ 1,000 people.

Tesla's first car - a $109,000 roadster that hit the market this year - will still be built in England. The company's electric sedans should start rolling off the San Jose production line in late 2010.

San Jose Mayor Chuck Reed spent months wooing Tesla, a San Carlos startup whose executives said in June that they wanted to build their factory in California. The deal they struck with the city gives Tesla an 89-acre parcel that the company can occupy rent-free for 10 years. After that, the rent jumps to $1.5 million per year.

"The mayor's vision of making San Jose the epicenter, if you will, of the green revolution aligns very well with us," said Ze'ev Drori, Tesla's chief executive officer, adding that the Silicon Valley is a leader in electronics and electrical engineering. "The heart and soul of the electric car is the electric drivetrain, and for that, we need the type of skills available here."

Reed has made landing "green collar" jobs, in fields such as solar power or alternative fuels, one of San Jose's biggest priorities. Like Silicon Valley as a whole, the city has many jobs at the top of the economic spectrum - such as executives and engineers - and many in service industries at the bottom. But it has few manufacturing jobs or others that pay middle-class wages.

"We're weak in the middle," Reed said. "We think there's an opportunity with clean tech to get some of those manufacturing jobs back."

The city has set a goal of adding 25,000 green tech jobs in 15 years. San Jose hasn't landed such a large business facility, of any kind, in years.

"We can safely say it's been a good decade or more," said Paul Krutko, San Jose's chief development officer.

The city estimates that the project will have a regional economic impact of $2 billion each year, a combination of tax revenue and spending by the people whom the Tesla campus will employ.

Although other companies have explored electric cars for years, Tesla has popularized the notion that such cars could be sexy. Its low and sleek roadster prototype attracted so much attention that would-be customers - including San Francisco Mayor Gavin Newsom and Gov. Arnold Schwarzenegger - started placing orders for the car months before it became available.

Tesla's Model S sedan, which will be built in San Jose, will hold more people and sell for less than the roadster. But it, too, will emphasize luxury. The company has not unveiled its exact design.

The company's executives originally considered building their factory in New Mexico. But in June, Schwarzenegger helped persuade the company to locate in California, offering to finance the purchase of $100 million worth of manufacturing equipment. The state will lease the equipment to Tesla, which then will have the option to buy the gear, without sales tax, at the end of the lease term.

Reed called the company two days after learning of the governor's incentive package.

"We weren't on their list," he said. "They hadn't even thought about San Jose."