Image: Schwarzenegger Tours Tesla Motors
Justin Sullivan  /  Getty Images
California Gov. Arnold Schwarzenegger inspects a Tesla Roadster Monday at Tesla Motors in San Carlos, Calif. He's ordered one of the all-electric sports cars for himself.
msnbc.com news services
updated 7/1/2008 3:44:01 PM ET 2008-07-01T19:44:01

Electric car maker Tesla Motors will manufacture the lower-priced follow-up to its Roadster sports car in California after the state offered a tax break to keep the operations there.

California Gov. Arnold Schwarzenegger, speaking at Tesla's headquarters in San Carlos, Calif., on Monday, said he was determined to prevent the automaker from setting up shop in New Mexico, which had offered it better incentives.

"I myself bought one of the first Tesla cars, so for me to see this company build a plant in New Mexico drove me absolutely insane," Schwarzenegger said. "My administration, of course, does not like to lose."

To keep Tesla in California, the state is offering a tax break to makers of zero-emissions vehicles (ZEVs) on equipment used to manufacture advanced transportation products. The break allows those companies to avoid paying state sales tax on certain equipment bought for making cars.

Tesla will use the tax break to build its second-generation electric car, called the Model S, in Northern California. The five-passenger sedan will cost about $60,000 and is expected to go into production in late 2010.

Boosting investment in green technologies that will help reduce greenhouse gas emissions and create jobs is a top priority for Schwarzenegger, who in 2006 introduced landmark legislation to combat global warming.

The success of Tesla and other electric car makers is critical to that effort, as the state is requiring that automakers put 7,500 ZEVs on its roads between 2012 and 2014.

Last week, state unveiled an ambitious plan to reduce pollutants by 10 percent from current levels by 2020, in part by requiring cleaner cars.

Tesla began delivering its $100,000 Roadster sports cars earlier this year. The car goes from a dead stop to 60 mph in just under four seconds and tops out at 125 mph. The roadster takes 3 1/2 hours to recharge when its batteries are depleted.

Schwarzenegger is awaiting delivery of the car.

Tesla plans to offer more affordable vehicles as the cost of producing them declines.

At the press conference on Monday, Tesla Chairman Elon Musk said the company was working on producing an all-electric car that would sell for under $30,000 and appeal to a wider market.

"This company is not out to solve a sports car shortage in the world," Musk said.

The Associated Press and Reuters contributed to this report.

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