In a surprising switch, Tesla Motors has announced it will build its next electric car model in its home state of California, lured by millions of dollars in state incentives. The start-up carmaker—a darling of the green tech movement—will now need to deliver on its promises, something that it has found difficult during its short existence. A little more than a year ago, Tesla had frustrated its California promoters, including Gov. Arnold Schwarzenegger—who ordered one of the early model roadsters—by announcing a that it had chosen to assemble the car in New Mexico.

Tesla Motors told Hybridcars.com that it feels the close proximity of its manufacturing plant to engineers at its headquarters in San Carlos is a big plus for the company. The spokesman added that no site for the factory has been selected, but that it will likely be close to one of the bridges over the San Francisco Bay.

Tesla’s second car, called Model S, will be a five-passenger sedan that they plan to introduce in 2010 at a retail price of $60,000. That’s slightly higher than the initial target price the company announced when it first began talking about the model, as happened with its roadster. Model S will use technology from Tesla’s first model, a $109,000 roadster that just began deliveries earlier this year. The roadster is assembled in a Lotus factory in England, and uses a modified Lotus Elise chassis, augmented by Tesla’s proprietary electric motor and lithium-ion battery pack.

Tesla will need to ramp up its manufacturing proficiency as it moves on to this higher volume model. Followers of Tesla will remember that the roadster was delayed several times and has seen its initial deliveries trickle out rather slowly. In addition to production setbacks, the company has battled quality issues with some of its components—most notably its transmission, which it is in the process of redesigning. Tesla hopes to start putting the new transmissions—and some other upgrades—into roadsters before the end of this year’s production.