Tesla opts for Federal Loans and Brownfield Location

Tesla Motors Inc.’s plans to locate its headquarters and a manufacturing plant in San Jose have stalled.

The intended location, an 89-acre strip of land between Highway 237 and Zanker Road, no longer works because Tesla wasn’t able to raise the $100 million in venture capital funding it had counted on to finance the facility.

The San Carlos-based automaker — known for its two-seater, convertible electric Roadster — announced in September it would move its headquarters to the city. The company also planned to build a $250 million Model S manufacturing facility on the consolidated 600,000-square-foot planned campus.

“We abandoned (the VC route) because the VC financing environment became so tight and difficult,” company spokesperson Rachel Konrad told the Business Journal on Wednesday.

Instead, Konrad said Tesla has applied for about $400 million in two federal, low-interest loans through the Advanced Technology Vehicle Manufacturing Program. It is seeking $250 million for the Model S manufacturing facility and $150 million for an advanced battery and powertrain facility.

The Zanker Road location no longer works because it’s an undeveloped “greenfield site,” and Tesla would build on it from scratch. The federal loan program favors “brownfields,” sites on which factories or plants closed years ago and need to be rehabilitated.

San Jose officials still hope to lure Tesla’s headquarters to the Zanker site.

“We’re very optimistic, even with Zanker Road,” said Michelle McGurk, senior policy adviser to San Jose Mayor Chuck Reed. “We know all the reasons Zanker Road made sense, and it still might make sense depending on how things shake out.”

McGurk added that if it doesn’t work out for Tesla, there are other companies that would be interested in the site, and city officials have been talking to those companies.

Tesla is competing for the $25 billion in federal funds available through the loan program, as are more than 75 companies, automakers and suppliers, both large and small. They include Detroit automakers that have access to many brown sites in the Midwest. Tesla would be at an immediate disadvantage if it applied for funding for a greenfield site.

“We can’t afford to do anything that would jeopardize our ability to get the federal loan,” Konrad said.

Instead, Konrad said Tesla is now looking and in negotiations for potential brownfields throughout the state, from those left over in Southern California by the aeronautics industry to Silicon Valley sites that housed chip plants, wafer fabrication and technology factories.

“Our thinking is now we want to keep the headquarters in Silicon Valley and the Model S assembly plant wherever it is most cost-effective and most expedient to get the car to market as fast as possible for the lowest cost,” she said.

Konrad said the battery and powertrain facility would also likely stay in the Bay Area, and the company is looking at sites including San Jose for that.

If Tesla gets its loans, it would take roughly two years to begin production of the Model S sedan, a plug-in zero emissions vehicle. They are planning to unveil the vehicle in March.

If it doesn’t get the federal funding, Konrad said the company intends to go back to the VC markets, which are pretty volatile and likely to stay that way for the next couple quarters, thus causing additional delays.

Konrad said when Tesla switched from its VC route to the federal sector, San Jose officials were incredibly helpful and responsive to the company’s needs.

“They definitely walk the walk and have courted Tesla heavily and persuasively and have shown they will do whatever it takes,” she said.

McGurk highlighted how hard Reed has worked on behalf of companies like Tesla, and said the city will actively continue to work with the company to ensure it is part of the growing cleantech economy.

“San Jose is open for business, and we are eager to work with these companies,” she said. “The challenge is this is a new industry and a new area and some of these technologies are untried, but like other famous San Jose startups like Cisco and eBay, these companies offer a future-changing paradigm.”

Lisa Sibley can be reached at 408.299.1841 or lsibley@bizjournals.com.