Volkswagen attorney Alex Leath said in a Jan. 27 email to the state Department of Economic and Community Development that the Volkswagen board would be presented options to build the new vehicle at the Chattanooga plant and or "alternative sites outside of Tennessee."
Tennessee's $300-million incentive offer to expand the plant has been complicated by Republican politicians' opposition to the United Auto Workers campaign to unionize workers there.
"While we understand there are some 'non-deal' issues that are causing a delay in the TN solution, VW has been successful in reaching agreement on terms at the alternative locations," Leath said in the email released to The Associated Press by the department.
Volkswagen wants to create a German-style works council at the plant representing both hourly and salaried employees, but can't do so without the involvement of an independent union.
But Republican leaders in the state have fiercely opposed the UAW gaining a foothold with Volkswagen, arguing that it would hurt Tennessee's ability to attract other manufacturers and suppliers. Before a February union vote, some warned the state Legislature could reject incentives if the UAW won.
The UAW ended up losing that vote 712-626. And on Monday the union abandoned an appeal of the outcome to the National Labor Relations Board, urging the state to quickly approve incentives to expand the plant.
In the January letter, Leath said he was drafting a memorandum of understanding "in an effort to advance the deal with Tennessee." That draft included incentives figures Leath said Volkswagen had proposed to the state several months earlier.
WTVF-TV in Nashville first reported Thursday that economic development officials responded to the draft memorandum by declaring the $300 million incentive deal was off the table.
Commissioner Bill Hagerty said then in an email to a negotiating partner at Volkswagen that "circumstances have changed," causing the state to revoke its offer.
Hagerty did not specify which circumstances had changed in the email, but said he looked forward to "renewing our dialogue and determining the appropriate level and terms of state support for this important project."
The German automaker's CEO, Martin Winterkorn, announced at the Detroit auto show in January that a new seven-passenger SUV will go on sale in the U.S. in 2016 and that production would either be in Chattanooga or at a plant in Mexico.
The new SUV is part of Volkswagen's plans to invest $7 billion in North America over the five years.
Republican Gov. Bill Haslam told reporters after the NLRB challenge was withdrawn by the UAW that he hoped to quickly re-engage in talks with Volkswagen that had been stalled since January.