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Tesla primed to expand following tax break

A Model S being produced at Tesla's assembly plant in Fremont, Calif.
Noah Berger | Bloomberg | Getty Images
A Model S being produced at Tesla's assembly plant in Fremont, Calif.

Electric car company Tesla Motors, which has been moving quickly to keep up with demand for its Model S, is getting a $34.7 million tax break that will help it expand production.

The California Alternative Energy and Advanced Transportation Financing Authority said Tuesday that Tesla will not have to pay sales and use taxes on new equipment worth almost $500 million.

(Read more: Tesla's plan for China is set to take off)

The company will use that equipment to make 35,000 more vehicles a year.

"I'm pleased we could take this action to encourage Tesla to expand its electric vehicle production in California, which will create green jobs and improve our air quality," said state Treasurer Bill Lockyer.

(Read more: In the midst of investigation, Model S tops latest survey)

Lockyer estimates that the tax breaks and expanded production will generate 112 new jobs at Tesla's plant in Fremont.

Tesla is expected to build 21,500 Model S units this year. Most of them will be sold in the U.S., with a smaller percentage in Europe, where the company is still establishing a sales network.

The carmaker has been cautious about giving official guidance for 2014. Earlier this year, CEO Elon Musk said he was confident that Tesla could raise annual production to more than 40,000 vehicles.

That would translate into building more than 800 Model S sedans a week. Its weekly production rate is now 600 vehicles—well above what Tesla planned at the beginning of the year.

(Read more: GM does a U-turn on Chevy in Europe)

While much of the extra capacity will be geared toward building more Model S copies, Tesla is also preparing to launch the Model X, its first crossover utility vehicle (CUV).

Customers who have ordered the Model X are scheduled to start receiving them in late 2014, with deliveries picking up in 2015.

—By CNBC's Phil LeBeau. Follow him on Twitter @LeBeauCarNews.

Questions? Comments? BehindTheWheel@cnbc.com.

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