On the outskirts of Reno, Nev., an inconspicuous excavation site marks the first visual sign of a project that has become the biggest economic development prize in the United States – a colossal factory designed to help the world's best-known electric car company turn the automobile industry on its head.

Earlier this year, Tesla Motors Inc. announced it is planning to build what it called a "Gigafactory" to ramp up the speed and quantity of its lithium-ion battery production. Should the company's estimates prove correct, the new production facility will essentially double the world's lithium-ion battery production in the next three years.

The project's price tag? Between $4-billion and $5-billion – a dollar amount that, given its multiplier effect, can have a staggering impact on a state's economy.

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"When you think about the way that would be allocated in terms of the building, the equipment the employees the transportation ... anything of that magnitude defies my comprehension when you have that many zeros behind that number," said Jakki Mohr, a professor at the University of Montana's department of management and marketing.

Since Tesla's announcement, a handful of U.S. states have been caught in a feverish contest to lure the company and its massive new factory – not to mention the 6,500 jobs that come with it.

State lawmakers have in recent weeks been readying incentive packages that will likely include hundreds of millions of dollars in tax breaks, investment and possibly exemption from certain environmental regulations.

The Gigafactory is the central plank of an audacious strategy by the company to bring electric-car battery costs down by more than 30 per cent in the next three years – enough to begin selling Tesla electric vehicles at a price tag of about $35,000 (U.S), compared with today's lowest-priced model, at about $70,000.

Almost everything about the proposed factory is gargantuan in scale. Tesla estimates it will need up to 1,000 acres of land and 10 million square feet of factory space. The facility is likely to draw a huge amount of power, not only from traditional sources, but also renewable ones such as solar and wind.

The company has made clear that it expects the public to pay about 10 per cent of the factory's costs. But that contribution of roughly $500-million is just one of the many incentives the winning state will likely have to offer. Tesla has narrowed its shortlist of finalists to California, Nevada, Arizona, New Mexico and Texas. Reno, Nev., is the first location in which the company has actually begun construction, but it intends to do so in at least one or two other states before picking a winner – keeping the contenders guessing in the process.

"Before we actually go to the next stage of pouring a lot of concrete, though, we want to make sure we have things sorted out at the state level, that the incentives are there that make sense and are fair to the states and to Tesla," Elon Musk, the company's CEO, said in a call with analysts.

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Tesla did not respond to a request for comment.

Every one of the states vying for the Gigafactory must overcome serious and unique hurdles.

California, for example, appeared as the early favourite, given that Tesla's headquarters are in Palo Alto, near Silicon Valley, as is its pipeline of skilled labour. And while relatively untapped, the area around California's Salton Sea is home to the biggest known lithium reserve in the United States.

But California has some of the highest tax rates and stiffest environmental regulations in the country, which make it a tough sell for a company that intends to produce 500,000 vehicles a year by 2020 – a number that will demand more electric-car battery production than exists in the entire world today. The state is putting together an incentives package in an attempt to lure Tesla, and the package may well include exemptions from some of those environmental rules.

Environmental regulation is far less of a concern for Tesla in Texas. However, that state currently bans direct auto sales, the means by which Tesla sells its cars.

Nevada, which appears to be the current front-runner, is particularly enticing for the company because the state has no personal or corporate income taxes. The state also has a bustling lithium industry. But Nevada's low tax rate limits the amount of money it takes in, and as a result, how much it can contribute to the project. Nonetheless, for the Reno area, trying to shake off its reputation as a poor man's Vegas, the prize is worth fighting for.

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"Any community that has a project like this would be thrilled because, first and foremost, it brings quality jobs to the region," said Mike Kazmierski, president of the Reno-Sparks-Tahoe Economic Development Authority. "But maybe even more importantly, it brands the community as a place that is selected in a highly competitive process as one of the best places to do business by an up and coming company.

"That brand associated with Tesla would rub off on the Reno-Sparks area, and already has."