UPDATED: 9/4/14 6:53 am ET - adds photo
CARSON CITY, Nev. -- Tesla Motors Inc. selected Nevada as the site for a massive battery factory that will be key to the success of its next generation of electric cars.
The California-based electric car maker is still hammering out the final details on the plant that will crank out cheaper and more efficient battery packs for future cars, including the $35,000 Model 3 that is due in 2017.
Nevada Gov. Brian Sandoval is asking the Legislature for as much as $1.3 billion in financial incentives to help Tesla build its “gigafactory,” said Steve Hill, executive director of Sandoval’s Office of Economic Development.
The plant may cost as much as $10 billion, Hill said. Tesla CEO Elon Musk had initially said the plant would cost $5 billion.
The incentives will come in the form of tax breaks and abatements, state officials said, and are subject to approval by Nevada lawmakers.
In exchange, Tesla must invest a minimum of $3.5 billion in manufacturing equipment and real property in the state -- a threshold that is much lower than the $10 billion Nevada officials expect the company to invest in the state over the next two decades, the Reno Gazette-Journal reported late Thursday.
Musk said Nevada's offer to Tesla "was not the biggest incentive package" but said that the state was picked because it "can do things quickly."
California, Texas, Arizona and New Mexico were also in competition for the plant.
It's being billed by Telsa and Nevada officials as the biggest lithium ion factory in the world.
Japanese supplier Panasonic Corp. will produce lithium ion cells for battery packs and will fund part of the cost of the plant, which is considered an important part of Tesla's ambitions of popularizing and lowering the price of EVs.
Musk told Tesla investors in July that 40 to 50 percent of the cost of the battery plant would be covered by Tesla, with Panasonic funding between 30 and 40 percent, and the state where it is located 10 percent.
"Other industrial partners" will provide between 10 and 20 percent of the cost for the "Tesla Gigafactory," Musk said in July.
“Nevada is getting this project for a bargain,” said Dennis Cuneo, president of DC Strategic Advisors and a former Toyota Motor Corp. executive whose consultancy near Reno worked with Nevada to land the factory.
The scale of Tesla’s project ranks as one of the biggest industrial development projects in the U.S. in terms of jobs and investment, said Cuneo, who previously helped Toyota select factory sites.
“Tennessee spent nearly $1 billion to land a Volkswagen plant a few years ago, and that was for considerably less investment and fewer jobs,” Cuneo said. “This is a very good deal.”
The factory's planned site is in an industrial park in Storey County, about 15 miles east of Reno, Nevada. Only about 4,000 people live in Storey County.
Musk, in a statement, called the factory "an important step in advancing the cause of sustainable transportation and will enable the mass production of compelling electric vehicles for decades to come."
"Together with Panasonic and other partners, we look forward to realizing the full potential of this project,” Musk said.
Tesla will eventually need more than one such factory to support its goal of selling hundreds of thousands of EVs a year, according to Musk.
Tesla plans to eventually sell at least 500,000 electric cars annually and supply stationary battery packs to store power from solar panels for homes and businesses.
The loss-making company expects to build more than 60,000 cars in 2015, after spending heavily this year to update and expand its existing Fremont, Calif., assembly plant.
Tesla has accelerated the expansion of the Fremont factory, which builds the $70,000-plus Model S sedan and will add output of a companion crossover, the Model X, next spring. Musk said the plant now can build up to 1,000 cars a week, and will double that by the end of next year.
Musk confirmed on Thursday that the company plans to have the mass-market Model 3 ready in three years.
Reuters and Bloomberg contributed to this report.