Dec. 10 (Bloomberg) -- The fate of Tesla Motors Inc.’s next generation all-electric sedan rests with the same pot of federal money lawmakers want to use to bail out General Motors Corp. and Chrysler LLC.

The maker of a $109,000 electric sports car is seeking $350 million in low-interest government loans to develop a $57,499 four-door sedan, Chief Executive Officer Elon Musk said yesterday. The company won’t build a planned $250 million manufacturing facility in San Jose, California, for the new car without the aid, he said.

Musk’s attempt to make closely held Tesla the first high- volume electric-carmaker has been pinched by the global financial crisis that is squeezing larger Detroit competitors GM, Ford Motor Co. and Chrysler. Tesla, which has sold 100 of its electric sports-cars, cut 24 percent of its workforce in October, and Musk said a recently completed $40 million debt offering “wasn’t very easy.”

“These are the sorts of troubles and challenges that many small startups see,” said Ed Kim, director of industry analysis for AutoPacific Inc. in Tustin, California. “What Tesla is attempting to do is very ambitious, but they are small and the vision and dream that the company has involves very expensive cutting edge technology.”

Tesla, based in San Carlos, California, is applying for loans under a $25 billion Energy Department program created by Congress to encourage the development of energy-efficient vehicles. Lawmakers and the Bush administration are debating using $15 billion from the fund to keep GM and Chrysler LLC operating.

Intended Purpose

Musk said Tesla wants to use the government aid for its intended purpose of building a new generation of vehicles.

“We don’t need the government to survive,” he said. “They need the government.”

Even without the loans, Musk said, Tesla will be profitable by the middle of next year because of sales from its battery technology and its Roadster, which costs $109,000. It delivered its 100th sports-car yesterday and Tesla expects to sell about 1,100 of the electric vehicles next year. The car has a body frame made by Group Lotus Plc and uses 6,800 rechargeable lithium-ion battery cells to accelerate from 0 to 60 miles (96 kilometers) per hour in fewer than 4 seconds. It can travel about 240 miles on a single charge.

Without the government assistance, Tesla will remain a boutique car dealer for the rich and could have trouble staying in business, Kim said in a telephone interview.

Need ‘Magical Investors’

“Without some sort of aid coming, I have a hard time imagining the company being around much longer unless some new magical investors were to step in,” said Kim. “They have major cash flow issues. They aren’t doing the volumes yet that are enough to keep the lights on.”

The proposed San Jose plant, announced at a ceremony with city officials in September, is expected to employ about 1,000 people.

“We can’t move forward with that without a major amount of capital,” Musk said. “If we don’t get any government funding then what we need to do is we need to wait until the capital markets recover, which could be a year or two years from now.”

Tesla has had other setbacks with its plans for a new sedan. The company in October delayed the expected introduction date of the car by a year to 2011. Musk took over as CEO in the same month, becoming the fourth Tesla chief since August 2007.

With the government aid and new factory, it could begin selling about 20,000 sedans a year by 2011, Musk said. A prototype of the new car will be unveiled as early as late February.

Seeking $650 Million

In addition to the $350 million loan application for the new sedan, Musk said Tesla is seeking $100 million to expand its drive train business in which it sells parts to other automakers and $200 million for a battery-cell production factory.

Musk, who received almost $300 million from public offerings of online companies PayPal and Zip2 Corp., has put at least $55 million into the company that started in 2003. Other investors include Google Inc. founders Larry Page and Sergey Brin and California-based venture funds Vantage Point and JP Morgan Bay Area Equity Fund.

California Governor Arnold Schwarzenegger, San Francisco Mayor Gavin Newsom and actor George Clooney are among those who own the Roadster.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

Last Updated: December 10, 2008 00:01 EST