Tesla’s move from Silicon Valley to Texas makes sense in many ways: CEO Elon Musk and conservative lawmakers running the state share a libertarian philosophy that favors limited regulation and low taxes. Texas also has room for growth for a company with grand ambitions.
“There is a limit to how much you can scale in the Bay Area,” Musk said Thursday at Tesla’s annual meeting at its new plant near the Texas capital. “Here in Austin, our factory is about five minutes from the airport and 15 minutes from downtown.”
But Texas may not be the natural choice, according to Musk.
Tesla’s stated mission is to “accelerate the world’s transition to sustainable energy,” and there are many customers among its customers looking for sports cars that do not emit greenhouse gases from their tailpipes. However, Texas is run by conservatives who are skeptical or opposed to efforts to combat climate change. They also fiercely defend the state’s large oil and gas industry.
And despite the state’s good business reputation, Tesla is unable to sell cars directly to customers because of a law protecting dealerships that Tesla does not use.
This move by Tesla is not surprising: Mr. Musk threatened to leave California in May 2020 after local authorities, citing the coronavirus, forced Tesla to close its car factory in the San Francisco Bay Area. But his decision to move to Texas highlights some gaping ideological contradictions. His company is at the forefront of the electric car and renewable energy movement, while the Texas lawmakers, who greeted him with enthusiasm, are among the biggest opponents of the economy’s shift away from oil and natural gas.
“It’s always a little thing in Texas’s hat when it takes business out of California, but Tesla is as unwelcome as it is welcome,” said Jim Crane, an energy expert at Rice University in Houston. “This is an awkward comparison. This is a state that receives a significant part of its GDP from oil and gas, and a serious competitor to this industry appears here. “
In February, a rare winter storm caused the Texas power grid to collapse, leaving millions of people without electricity and heat for days. Soon after, state leaders attempted – wrongly, according to many energy experts – to blame renewables for the power outage.
“This shows how a Green New Deal will be a deadly deal for the United States of America,” Governor Greg Abbott said about the blackout on Fox News. “It just goes to show that Texas and other states need fossil fuels to ensure we can heat our homes in the winter and cool our homes in the summer.”
Mr Musk, who has lived in Texas since last year, appeared to take a very different view on Thursday, suggesting that renewables can indeed protect people from power outages.
“I was actually in Austin during that blizzard, in a house with no electricity, no light, no electricity, no heating and no internet,” he said. “This went on for several days. However, if we had solar panels plus Powerwall, we would have light and electricity. “
Tesla – a leading manufacturer of solar panels and batteries – the company calls one of its products Powerwall – for homeowners and businesses that can store renewable energy to use when the sun goes down, when electricity prices are higher, or during power outages. The company reported $ 1.3 billion in solar panel and battery sales in the first six months of the year.
Musk’s announcement to move Tesla’s headquarters from Palo Alto, California was sparsely detailed. For example, it is unclear how many workers will move to Austin. It is also unknown if the company will carry out research and development in California in addition to its Fremont plant, which is a short drive from its headquarters and which it says will expand. The company has approximately 750 employees in Palo Alto and approximately 12,500 employees in the Bay Area, according to the Silicon Valley Institute for Regional Studies.
It’s also unclear how much money Tesla will save on taxes by moving. Texas has long used its relatively low taxes, which are lower than California, to attract companies. The county has already approved tax breaks for the company’s new plant, and the state has more to offer.
Over the years, California has provided hundreds of millions of dollars in tax breaks to Tesla, Governor Gavin Newsom noted on Friday. But as Tesla continues to operate in California, it may have to pay income tax on sales in that state, said Kayla Kitson, an analyst at the California Center for Budget and Policy.
Whatever incentives they offer Tesla, Texas officials are unlikely to give up their support for the fossil fuel industries the company competes with.
In a letter to state regulators in July, Mr. Abbott directed the Utilities Commission to stimulate the state’s energy market “to help develop and maintain adequate and reliable energy sources such as natural gas, coal and nuclear power.”
The governor also ordered regulators to charge wind and solar suppliers a fee for “reliability” because, given the natural variability of wind and sun, suppliers could not guarantee they could provide electricity when needed.
Mr. Abbott’s letter did not mention battery storage, suggesting he sees no role for the technology, which many energy experts believe will become increasingly important in smoothing wind and solar power production. Tesla is a major player in these batteries. Its systems have helped power grids in California, Australia and elsewhere, and the company is also building a large battery in Texas, Bloomberg reported in March.
Texas has no clean energy mandates, although it has become a national leader in solar and wind power, thanks in large part to the low cost of renewables. The state produces more wind power than any other state.
Another issue that separates Tesla and Texas is the state’s law on how to sell cars there.
Like some other states, Texas has long had laws protecting car dealerships that prohibit automakers, including Tesla, from selling them directly to consumers. California, the company’s largest market today, has long allowed the company to sell cars directly to customers, which allows it to make more money than it would if it had to sell through dealerships.
Tesla has showrooms all over Texas, but employees are not even allowed to negotiate prices with potential buyers, and showrooms cannot accept orders. Texans can buy Teslas online and pick up vehicles at its service centers.
Once the Austin plant starts producing cars, including a new pickup truck that Tesla calls the Cybertruck, those vehicles will have to leave the state before being delivered to customers in Texas.
Attempts by Tesla and some state legislators to change the law have gone nowhere, including during the legislative session that ended this year. This is in part because car dealerships have enormous political clout in the state.
Perhaps when Tesla moves to Austin and starts making cars, Musk may have enough political clout to force the legislature into action. However, Texas lawmakers usually meet only once every two years, so it will likely take the company’s consumers until at least 2023 to get a car straight from its factory.
Michael Webber, a professor of mechanical engineering at the University of Texas at Austin, said Musk’s decision to move to Texas may have been influenced in part by his ability to pressure the state to change his law.
“The Texas auto market is the second largest auto market in America after California, so if you sell cars it makes sense to get closer to your customers,” said Mr. Webber. “The Texas car market is especially difficult outside of cities due to legal barriers.”
There were already signs on Friday that some in Texas, including those in the oil and gas and related industries, were happy to have a Tesla because it could eventually hire thousands of people.
“This can only be positive for Texas because it brings more business to Texas,” said Linda Salinas, vice president of operations for Texmark Chemicals, located near Houston. “While this is not a mining business, it is still a business.”
She said Texmark could even benefit from Tesla’s manufacturing operations in the state. “Texmark makes and sells mining chemicals to people who mine copper and guess what batteries are made of?”
Peter Ibiz made reporting. Susan S. Beachy contributed to the research.