Tesla Motors will be building a plant for making its electric sedan codenamed WhiteStar in California instead of New Mexico, the company said Monday.

The startup, based in San Carlos, Calif. said it wants the new manufacturing center to be close to its headquarters for the rollout of the second car model in its company history. Tesla originally considered building the plant in New Mexico, which offered strong incentives.

Tesla will market the sedan as Model S, which would cost $60,000 to consumers before any tax credits or other incentives. Model S will be all electric, with a drive range of about 225 miles per charge. The company had discussed in April making both an electric and a plug-in hybrid model (see Tesla's Second Unveiling).

Tesla plans to begin producing the four-door, five-passenger car in 2010. The company is looking at two locations in the San Francisco Bay Area for the new plant, said Darryl Siry, Tesla’s vice president of sales and marketing, who declined to name the two locations.

The plant would be capable of making 20,000 Model S cars a year, Siry said.

Tesla originally intended to build the plant in New Mexico, which offered strong incentives. But California made a counteroffer, which led to the Monday announcement that included an appearance by Gov. Arnold Schwarzenegger at the Tesla headquarters.

“For me to see the manufacturing plant [go to] New Mexico drives me absolutely crazy,” said Schwarzenegger, who is on the waiting list for a Tesla’s sportscar, the Roadster. “I wasn’t about to allow the company that makes the world’s sexiest and best high-performance electric cars to go to another state.”

Schwarzenegger touted a program that waives sales and uses taxes for buying manufacturing equipment for producing electric cars. The governor said the incentives would save Tesla millions of dollars in building its new plant.

Aside from the state incentives to build the plant, Tesla CEO Ze'ev Drori said the company wants the plant “close to its engineering and management teams.”

Tesla has made its name as the designer and maker of the sleek Roadster, an all-electric sports car that the company said can go from 0 mph to 60 mph in 3.9 seconds. The company launched the Roadster in February (see First Tesla Production Roaster Arrives).

But Tesla’s long-term plan is to make money in the mass market.

“This company is not out to solve the sports car shortage in the world,” said Tesla Chairman Elon Musk at the press event. Musk said the company engineers are working on projects that would reduce the price of an electric car to $30,000 in four years.

The company in February told Greentech Media it had planned to manufacture its first two models on its own, but hoped to partner with a major automaker for its third model, a compact sports car expected to cost between $30,000 and $35,000 (see Tesla to Big Three: Let’s Be Friends).

"We increasingly feel that for the premium electric vehicle market, a range extender or series hybrid doesn't make sense," said Siry.

A series, or serial, hybrid usually pairs an electric motor with a fuel engine that gives the vehicle unlimited range. Unlike hybrids on the streets today, series hybrids use only the motor – not the engine – to propel the vehicle.

Siry said when the battery wears down in a series hybrid the vehicle runs only on the generator. As a result, it turns into a low performance car, which will not be acceptable to customers who would pay $60,000 for a car.

The price is high compared with other types of electric cars, such as the plug-in hybrid Chevy Volt, which General Motors is expected to launch in 2010 (see Chevy Volt Cleared for 2010 Production). GM plans to sell the car for $40,000.

Siry contends that Tesla is targeting a more upscale customer base with Model S.