The lithium ion battery production facility, which it calls a "Gigafactory," will employ about 6,500 people and cover up to 10 million square feet on a 500- to 1,000-acre site, Tesla said.
The company didn't say when it would announce the winning state.
Tesla said the goal is for its Gigafactory to significantly reduce cell costs and by 2020 produce more lithium ion batteries annually than were produced worldwide in 2013.
"By the end of the first year of volume production of our mass market vehicle, we expect the Gigafactory will have driven down the per kWh cost of our battery pack by more than 30 percent," Tesla said.
Tesla said it aims to boost production of its all-electric cars from 35,000 a year in 2014 to 500,000 by 2020.
"As we at Tesla reach for our goal of producing a mass market electric car in approximately three years, we have an opportunity to leverage our projected demand for lithium ion batteries to reduce their cost faster than previously thought possible," Tesla said in a statement on its website.
"In cooperation with strategic battery manufacturing partners, we're planning to build a large-scale factory that will allow us to achieve economies of scale and minimize costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes and reduced overhead."