Tesla to Texas: How Do You Like Us Now?

Paul Sakuma/APAssembly workers put together a Tesla Model S at the Tesla factory in Fremont, Calif.
By Philip LeBeau

How's this for a trade: 6,500 manufacturing jobs and an investment of more than $4 Billion in exchange for the right to sell cars in a particular state.

That's one of the intriguing story lines surrounding the decision of where Tesla (TSLA) will locate a massive Gigafactory for producing lithium-ion batteries and electric storage applications.

Texas is one of four states named as a finalist for the massive plant, along with Arizona, Nevada and New Mexico.

So why is Texas such an intriguing candidate?

It all stems from the contentious relationship Texas lawmakers have had with Tesla in keeping the electric carmaker from selling cars in that state.

Until now, there has been little reason to believe Texas' ban on direct auto sales would be lifted, but the Gigafactory could change that assumption.

6,500 Jobs, $5 Billion Investment

The Tesla Gigafactory, wherever it's located, will provide a huge boost to the local and state economies.

There are few major manufacturing plants that bring in two or three thousand jobs, let alone one that would create 6,500 jobs.

All together the new battery facility will cost between $4 and $5 Billion, with Tesla investing $2 billion of its own money into the project.

Those are the kind of economic figures that are likely to make political and business leaders in Texas work hard to convince Tesla to build the Gigafactory in their state.

And what could they offer Tesla as an incentive to pick Texas?

Tax breaks? Sure

Infrastructure investments? Good idea.

The right to sell Tesla vehicles in Texas? Now you're talking.

And there's the rub. Texas lawmakers will be hesitant to reverse the state's ban on vehicle sales that don't go through auto dealer

Texas Auto Dealers Won't Give In

The Texas Auto Dealers Association is a very well-funded and politically powerful group. Over the last couple of years, it has spent millions of dollars and lobbied aggressively to make sure Texas auto sales go through Texas dealers.

For example, %VIRTUAL-article-sponsoredlinks%in 2012 the Texas Auto Dealers spent more than $2.5 million on legislative elections in Texas and donated to 60 percent of the state lawmakers, according to an article in Green Car Reports.

Add to that the fact auto dealerships are often the biggest generator of sales tax in many counties in the lone star state and you see why Texas lawmakers passed a law banning direct sales from automakers.

Still, it would be considered political suicide to turn down the chance to land a major manufacturing plant that could have a huge impact on the state economy.

Tesla CEO Elon Musk has a very strong hand in a high stakes game of Texas hold 'em where the auto dealers have, until now, been throwing down a full house.

Does Musk have the cards to win?

If he does, Tesla could finally get access sell cars directly in country's second largest auto market.

Second Largest Auto Market in the U.S.

For the last few years Texans who wanted a Tesla had to buy it directly from Tesla's headquarters and then have the car delivered by a third party vendor.

While the setup is far from convenient, it hasn't stopped Texas from becoming one of the top markets for Tesla sales.

If Texas were to drop the ban on direct auto sales, Tesla sales in the state would likely increase substantially.

It would also give Tesla a huge win in its on-going battles with state legislatures that have either banned or are considering bans on direct auto sales.

Not a bad pay off for investing a couple billion dollars and adding 6,500 jobs to the Texas economy.

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