Electric carmaker Tesla Motors has chosen to build its four-door sedan, the Model S (pictured at right), in the city of Downey rather than Long Beach, according to reports in The District Weekly, based on promises made by the mayor of Downey. The decision seemed to be up in the air for months as the automaker negotiated plans to build production plants on either a former Boeing site in Long Beach or a former NASA site in Downey.
The deal isn’t done yet. The District Weekly reports that Downey Mayor Mario Guerra plans to issue an official announcement sometime next week. Meanwhile, the Boeing site in Long Beach continues negotiations to bring Long Beach Studios film company to their site.
The Tesla deal promises 1,200 jobs. The Long Beach Studios deal promises between 2,500-3,000.
In April, the lbpost.com was the first to report Tesla’s interest in moving to Long Beach when columnist Nancy Pfeffer attended the launch of the Model S in Los Angeles. The District Weekly has been a sharp critic of Long Beach’s apparent lack of effort to woo Tesla to build their Model S production plant at the Boeing site. Certainly, Downey made a very public push by visiting the carmaker’s headquarters and delivering a gift basket. Long Beach made no such proposal, save for a YouTube video created by Councilmember Gerrie Schipske that touted benefits the city could offer.
Long Beach did have one distinct benefit: the promise of Enterprise Zones that would have exempted Tesla Motors from certain taxes. But Downey had another, perhaps equally potent advantage.
The City of Downey actually owns about one-third of the NASA site that Tesla was considering, and therefore city officials could be directly involved in the negotiations. Long Beach does not own the Boeing site; Boeing does, and was the sole negotiator across the table from Tesla.
Tesla Motors carries some considerable baggage of its own.
The six-year old darling of the automotive world, still basking in the success of its $100,000+ electric Roadster S convertible, entered into a similar production agreement with the city of San Jose in the summer of 2008 – then scorned Silicon Valley when they backed out of the deal a few months later.
Then, there’s money.
Telsa is armed with $456 million in low-interest loans from the Department of Energy. But before that, they were down to their last couple of million dollars. Now, the automaker is about to be saddled with two massive expenses.
First, that NASA site in Downey is worth a mighty sum, probably somewhere in the hundreds of millions of dollars. Even with a long-term lease, that’s a tough financial hurdle to clear. Of course, Tesla doesn’t have any choice but to acquire a facility like that, because they’ve promised to begin building the Model S in 2011.
That’s a promise they’re bound to, because the company has already begun accepting deposits from potential Model S buyers before they’ve even developed a production facility for the car, much less a working prototype.
The Model S, according to Tesla, will be completely designed and produced independently and with completely original parts. This is an important statement, because it generally costs the largest automakers at least hundreds of millions of dollars to design and produce an all-new platform. Tesla is promising to do so before even acquiring a facility – much less develop that facility. (It’s worth noting that the wildly popular Roadster S used a reworked Lotus chassis in order to cut down on costs, while the Model S will be constructed completely from the ground up.)
In summation, Tesla has been accepting deposit payments for a car that is not yet built and does not have a developed production facility. The company will soon be on the hook for their massive real estate investment in the Downey property, and will potentially need to come up with hundreds of millions to produce the Model S.
For a company depending on loans from the Department of Energy, that’s a lofty goal.
Then came yesterday’s news that Tesla is planning to file for an initial public offering (IPO), the first for an American automaker in more than 60 years and a development that the Press-Telegram’s John Canalis today calls “unrelated” to the potential Downey deal. Of course, the two stories are very related as cash-strapped Tesla is considering the IPO in order to increase fundraising. The Los Angeles Times recently wondered whether, in this economic climate, that plan is feasible or not.
The allure of an all-electric, practical, performance-inspired and downright beautiful automobile is magnetic, to say the least. Behind the curtain, things aren’t so simple. Tesla needs a lot more than an Energy loan to deliver on its promise to deliver the Model S sedan by 2011. Of course, skeptics doubted that the Roadster S would succeed, so maybe Tesla will prove us all wrong once again.
But then, the allure of a movie studio in Long Beach was certainly magnetic, as well. Despite rumors this September that the deal was nearly complete, here we stand in November with a vacant Boeing property.
Despite rumors today that Tesla is ready to shake hands with Downey, we’ll see where we stand in the coming weeks.