Musk moves Tesla Silicon Valley HQ to Texas
Tesla is the latest firm to relocate its HQ from California – but not without political fallout. By Matthew Field and James Titcomb
TESLA is to quit Silicon Valley and move its headquarters to Texas after chief executive Elon Musk criticised lockdown measures by local leaders as “fascist”.
The electric car company will move from Palo Alto to the Texas capital, Austin, Mr Musk told a meeting of Tesla shareholders, making it the biggest company to quit Silicon Valley for the Lone Star state yet. Tesla is also building a giant “gigafactory” in Austin – a liberal centre of the Republican state.
Mr Musk told investors: “I’m excited to announce that we’re moving our headquarters to Austin, Texas … Just to be clear, though, we will continue to expand our activities in California.”
The Tesla billionaire has been an outspoken critic of some of California’s coronavirus policies, at one stage calling them “fascist”, after they forced the car company to close its plant in Fremont due to lockdowns.
In May last year, Mr Musk sued state officials, claimed Tesla would move its headquarters and threatened to shut down manufacturing in California. Mr Musk moved his home to Texas last December.
But Texas has also looked to lure companies with lucrative tax breaks. This year, Texas will offer tax breaks totalling $44.5bn (£33bn), including $14bn in property tax breaks and billions of dollars in breaks for car sales. The state has no income tax. It also has some of the lowest energy prices in the US and loose business regulations.
Tesla is not the first technology company to abandon Silicon Valley. Palantir, a big data company founded by Republican supporter Peter Thiel, left California for Denver, Colorado. Others including HP and Oracle, founded by Republican Party donor Larry Ellison, have relocated.
Palantir cited political reasons for its decision with its chief executive slamming a “monoculture” in the state and “increasing intolerance” to the company’s defence contracts.
Republican Governor Greg Abbott welcomed the news, saying “the Lone Star State is the land of opportunity”.
A spokesman for Gavin Newsom, Governor of California, said the state remained “home to the biggest ideas and companies on the planet”.
On a makeshift stage at Tesla’s gigafactory in Texas, Elon Musk drew tub-thumping applause from the home crowd. “I’m excited to announce that we’re moving our headquarters to Austin, Texas,” he said, standing in front of a screen emblazoned with an image of a belt buckle featuring Tesla’s T logo – and the phrase “Don’t Mess With”.
Musk’s decision to relocate its base from California’s Silicon Valley, for decades America’s high tech nexus, repeats a pattern of loudly liberal start-ups upping sticks to the Lone Star State known for its strict abortion laws and legal death penalty.
Tech companies, famed for their wellness-focused workplaces, have been drawn to Texas thanks to its rock bottom taxes and minimal regulation. Tesla, valued at $785bn (£577bn), represents the biggest win yet for the southern state.
Aside from financial appeal, a growing cohort of entrepreneurs have fallen out of love with California’s ultraliberal politics. What once looked like a trickle of Republican pariahs risks becoming a full-blown “Texodus” of talent.
For Musk, 50, relations with California and its officials have deteriorated since the start of the coronavirus pandemic as his beliefs seemed to increasingly lean right. He slammed stay-at-home orders in the state as “fascist” and attempted to reopen Tesla’s Fremont, San Francisco, factory when California went into lockdown, kicking off a legal battle with county officials.
“This is the final straw,” he fumed on Twitter in May. “Tesla will now move its HQ and future programs to Texas/ Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be dependent on how Tesla is treated in the future.”
His update on Thursday did not go as far as his threats, however. The Fremont factory will remain a hive of activity. “Just to be clear, though, we will continue to expand our activities in California,” said Musk.
But Texas is expected to become the company’s nerve centre in future.
Dan Ives, an analyst at Wedbush Securities, says: “While Fremont will continue to be a key for Tesla around Model 3 production, we believe this was the first step towards Tesla making Austin its domestic and global foundational location over the coming decade with its recent frustration with California officials likely accelerating this move.” Its shareholders believe the
‘There’s a sense that California companies are moving to Texas at a pretty fast clip. There’s a lot of buzz around town’
relocation is a good business move. “This is a smart move for expansion, a smart move for the corporation,” says Ross Gerber, a Tesla shareholder at Santa Monica-based fund Gerber Kawasaki.
He says salaries for manufacturing labour barely cover the cost of living in California, while a “tax assault” has eaten into pay packets. “Why would you live [in California] earning $100k a year if you cannot afford to live.”
Musk – the second richest person in America – told investors he believed the cost of living in California was a problem. “It is a lot for people to afford houses, a lot of people come in from far away,” he said. “There is a limit to how far you can scale in the Bay Area.”
The median house price in San Francisco is around $1.3m, compared to the average in Austin of $575,000.
Over in Texas’s capital, head of the Austin chamber of commerce Laura Huffman calls the move “a home run for this community”. “This really does cement our region’s reputation for being a hub for innovation,” she says. “There’s definitely a sense that California companies are moving to Texas at a pretty fast clip. There’s a lot of excitement around town, there’s a lot of buzz around town.”
The state has laid on plenty of incentives to entice companies. Its total tax burden as a share of residents’ personal income was around 8.9pc in 2018, according to the latest figures from the state, compared to California’s 10.7pc. It also offered tax breaks totalling $44.5bn, including $14bn for property, and has no income tax.
That compares to California, which has increasingly threatened to pile up taxes on its ultra wealthy companies.
Joe Lonsdale, a venture capitalist at 8VC, told CNBC yesterday: “California is a beautiful place, but it seems like the politics are quite extreme.” On taxation, he argues the sunny state is “very badly run” and the money there “wasted”. Lonsdale’s fund announced its own relocation from California to Texas late last year.
Some companies leaving the Bay Area have been explicit about the political nature of the move.
Big data firm Palantir, which Lonsdale co-founded, moved out of the Bay Area to Denver, Colorado, while its chief executive slammed the “monoculture” in the Democrat state. Peter Thiel, its chairman, is one of the most high-profile Republican supporters in tech – and a former colleague of Musk.
Others that have made the move include data giant Oracle, led by another Republican ally Larry Ellison, and HP. The area around Austin has even been dubbed the Silicon Hills.
Tesla’s move was even jumped on by the Red state’s politicians with Republican Governor Greg Abbott welcoming the news, as did former presidential candidate Ted Cruz who stated “freedom matters”.
A spokesperson for Gavin Newsom,
Governor of California, said the state remained “home to the biggest ideas and companies on the planet”, adding it would “stand up for workers, public health and a woman’s right to choose”.
In a reverse move, some tech firms have been fleeing Texas over its extreme right-wing laws with Salesforce offering to pay staff to leave the state. Under Abbott, Texas has introduced some of America’s most hardline abortion rules banning it from the six-week point. On Thursday, a judge temporarily blocked the law – its legality is being challenged by the Biden administration.
While parts of Texas such as Austin have grown more liberal, the state remains a Republican heartland.
Tesla shareholder Gerber admits the electric car marker is moving to Texas at a time when “morally corrupt” rules are being enforced, and he doesn’t see that changing. “If you don’t like Texas, you should not be in Texas, because it isn’t going to change.”