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SAN JOSE, CA-Electric car maker Tesla Motors will lease 89 acres of city-owned land here for a new headquarters, R&D and manufacturing campus. The property sits adjacent to a water-treatment plant near Zanker Road and Highway 237 in North San Jose. The land is owned by the cities of San Jose and Santa Clara, which are expected to facilitate the permitting process. A long-term lease and development agreement is under negotiation, with construction expected to begin next summer.

Tesla executives say they chose San Jose because the company was born in the Silicon Valley and its current headquarters is just 20 miles away, which means its engineers and executives reside in the general area as well as the rest of the company’s 250 employees. In addition, it’s where the skilled high-tech work force is generally located, and California is where it expects to find the most buyers early on. The company’s first two showrooms are in Menlo Park in Northern California and Santa Monica in Southern California.

“Big deals like this happen when both parties have something significant to gain,” said Tesla president and CEO Ze’ev Drori at a Tuesday morning press conference. “Locating Tesla’s headquarters, manufacturing and R&D in San Jose will allow us to proceed with minimum disruptions and virtually no dislocations.”The cities are working on a 40-year lease agreement that includes no rent for the first 10 years. Tesla would pay $1.5 million a year for the property for the next 10 years, and then for the final 20 years its rent would increase at a rate of 2% per annum. To build the campus, Tesla will use a $150-million loan guarantee from the US Dept. of Energy and a $150-million private capital round led by Goldman Sachs. In addition, the state of California will essentially waive the sales tax on $100 million worth of equipment for Tesla. In return, Tesla will construct the campus with LEED-Gold certification as its goal.

Construction of the campus is expected to generate 600 jobs and $40 million in wages. Permanent jobs at the campus would total 1,000 and have an annual payroll in excess of $100 million.

The workers will be focused on Model S, Tesla’s zero-emission, five-passenger luxury sedan powered by a lithium-ion battery pack. It is expected to have a base price of about $60,000 and get about 240 miles per charge. The first sedans will likely roll off the assembly line in late 2010. Initially Tesla plans to produce 15,000 vehicles a year and eventually ramp up to 30,000.

Tesla’s first production vehicle is the Roadster, a zero-emission, all-electric, two-seat sports car. On sale now in the United States and Europe for more than $100,000, the Roadster is assembled, and will continue to be assembled—at a Group Lotus PLC factory in Hethel, UK. Tesla has delivered about 30 Roadsters so far, and is ramping up production to meet demand. More than 1,200 people have reportedly put down deposits.

As part of its expansion Tesla has been adding experience. Mike Donoughe, who spent 24 years at Chrysler, is now the Tesla EVP overseeing both the Model S and Roadster programs. Deepak Ahuja, formerly a controller at Ford, is now Tesla’s CFO. Franz von Holzhausen, former director of design for Mazda North America, is designing the Model S.

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