An Electric Car Company Makes a Proposition to the Big Oil State

Tesla-gigafactoryTesla, the electric car manufacturer led by Silicon Valley billionaire, Elon Musk, is considering four locations for what would become the world’s largest battery factory, producing 30 gigawatt hours of energy per year. Among the prospective hosts for the gigafactory are Arizona, Nevada, New Mexico, and Texas. The factory is projected to provide $5 billion in direct investment and create approximately 6,500 jobs to the lucky community chosen to host the site.

Wherever the new Tesla plant is built, the factory itself will represent a giant step forward in the effort to create new technologies that reduce our carbon footprint. While adding more fuel-less cars on our roadways would reduce our mobile emissions, Tesla seems to also be mindful of the impact that production of such vehicles can have on the environment and climate. Tesla plans to source only North American raw materials for battery production, and post-production of the battery will only need to be transported to their headquarters in California. The factory itself will be run on solar and wind sources operated at the plant, while using batteries to store excess generated energy.

The plant is projected to increase the company’s production from 35,000 vehicles a year (2013 production) to 500,000 cars a year by 2020. The cost of the battery will be reduced by 30%, eventually allowing Tesla to not only sell luxury vehicles costing over $70,000 but to also sell a sedan at a mere $35,000, the average price for a vehicle.

The timing of this cheaper sedan couldn’t be better for Tesla. The Obama administration has declared that all tailpipe emissions must be reduced by 80% by 2018. If mainstream car companies are forced to compete with a low-cost, zero-emissions alternative, in the not too distant future, an 80% reduction goal might seem conservative in retrospect.

Texas, specifically San Antonio, is one of the most desirable sites for the gigafactory. By placing the factory in Texas, Tesla would extend its influence from California to second largest state in the union. Texas has an ample number of skilled workers available to fill positions at the new plant, and it is also the only state that isn’t landlocked which makes it perfect for exporting new goods. Despite the significant benefits of placing the factory here in Texas, there is a major legislative roadblock preventing Tesla from selecting the Lone Star state.

The greatest threat Musk sees to the success of his electric cars is selling them through a traditional dealership. “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,” Musk wrote. For the success of Tesla, Musk sees no other option than direct sale to consumer.

In some states, including Texas, it is illegal for car companies to sell directly to consumers. Car dealers claim that the dealership model encourages a healthy auto market because dealers must compete with other dealers on pricing.  Tesla prefers to sell its products directly to consumers, cutting out the middleman and the additional cost to consumers.

Currently there are two Tesla stores in Texas, located in Austin and in Houston, with a third coming to Dallas. These stores operate legally as “showrooms” with a layout very similar to that of Apple stores. A model car sits on the floor with sales representatives waiting to assist customers. However, in order to comply with the law the salesperson cannot answer questions about leasing, financing, pricing, the reservation process, servicing or warranties; customers aren’t even permitted to test drive the cars.

Why would Tesla want to benefit a state that won’t even allow them to disclose the price of their vehicle? This is the major hurdle that the Texas legislature would have to address before Tesla would give Texas the thumbs up.

Amazingly, Governor Perry seems to side with Tesla, acknowledging that “the cachet of being able to say we put that manufacturing facility in your state is hard to pass up.” Perry believes legislatures need to have the discussion about whether the “antiquated” law still needs to exist, though he has opted to not bring the Legislature back for a special session to consider the issue. The question as to whether the company will wait until 2015 to decide on the location of the new plant – when the Texas Legislature comes back to Austin for its biennial regular session – remains to be seen.

6 responses to “An Electric Car Company Makes a Proposition to the Big Oil State

  1. Is it Time to remove the dealerships?
    Normally there is little profit in new car sales and more for repairs…..
    So what are the arguments for dealerships?

    List the boys…..
    And impart experience and wisdom….

  2. It is unfortunate that the self interests of a few can successfully block potential benefits of many. It is this old-line of thinking that threatens us in many different ways. What can we do to ensure Tesla comes to Texas!?

  3. I have no idea; I look at car dealerships as a complete waste of land and resources; How do they fill entire parking lots with new vehicles but only sell two or three? How does that business function?

    I don’t know, it doesn’t make any sense to me and my honest opinion is that car dealerships are ugly. They are a sore-sight, there are too many of them and they are too ugly. Of course the inefficient fossil fuel burning car dealerships don’t want true competition, much like the retail stores don’t like online store competition. Why? Get’s rid of all their profit.

    But what must be done, must be done. If you didn’t want to lose your business or your profits maybe you shouldn’t be involved in any business that ruins the planet — then your job wouldn’t have to go.

    Ever think about that?

    As for texas and the US, I can already see them disregarding this $5 billion, they only care about fossil fuels and causing human extinction via their use, not sustainability, not flourishing and definitely not doing what is right.

  4. Using green energy fo fuel the facility, but what are the toxic effects and waste caused by the manufacture of batteries? Where do the huge number of batteries necessary to operate these vehicles end up ? They are expensive and have to be replaced often does this not create another environmental dilemma?

    • Damien Brockmann

      Good questions. And true – Tesla is a private company, and just b/c it produces electric cars doesn’t mean that everything it does is going to be good for the environment. They don’t get off the hook that easily..

      Don’t forget that the hope would be that electric vehicles replace conventional automobiles – which have their own dirty manufacturing processes. I guess we could do a full life-cycle analysis / comparison of the two types of vehicles and all of their components and emissions to see which wins. Without that data available, most folks are betting that electric is better. The batteries might present disposal issues, but the electric engine itself is so much simpler than a gasoline engine. It has a lot less moving parts (which means less breakdowns), and does not require the same cooling system as a gasoline engine.. Not to mention the emissions and oil leaks..

      It should also be stressed that developing better batteries is an important component of promoting renewable energy. (Essentially – electric cars are just mobile batteries, storing energy produced from the electric grid.) One of the biggest arguments against solar and wind is that they are too variable to be reliable. There’s either too much or too little – and they may or may not produce when we need energy the most. However, if we can develop more efficient battery systems (which is what Tesla is doing) that argument increasingly irrelevant. With better/ cheaper batteries, utility scale wind and solar energy would be able to be stored and released steadily throughout the day.

  5. Pingback: Texas blog roundup for the week of April 28 – Off the Kuff

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