California Losing Tesla Headquarters to Texas

Tesla, Inc., displays a Texas-style logo during the company's 2021 Annual Shareholder Meeting on Oct. 7, 2021. (Screenshot via YouTube/Tesla)

During his remarks to Tesla’s shareholders at their 2021 Annual Shareholder Meeting on Oct. 7 near Austin, Texas, Tesla co-founder and CEO Elon Musk announced to applause, “I’m excited to announce we’re moving our headquarters to Austin, Texas.”

At the same time, he displayed a Tesla logo superimposed on a Texas-style sheriff badge that read “Don’t Mess With” onscreen, while wearing a Western-style bandana around his neck.

The key reason Musk gave for the move is “there’s a limit to how big you can scale it in the Bay Area.”

The headquarters in California are located at a site previously used for a joint venture between General Motors and Toyota.

Musk said that when Tesla moved into the factory, it was a like a child putting on his or her parents’ giant shoes, but now it’s difficult to add “more stuff” to the factory. Furthermore, he said, “it’s difficult for people to afford houses [and] people have to come in from far away.”

Fremont is in the heart of California’s Silicon Valley, which also includes San Jose and the home of Stanford University, Palo Alto. According to Musk’s comments, Tesla’s artificial intelligence, chip design, and some other engineering functions will remain in Silicon Valley.

The factory and headquarters in Austin will be “five minutes from the airport, 15 minutes from downtown, [and] we’re going to create an ecological paradise” along the neighboring Colorado River, not to be confused with the Colorado River that runs between California and Arizona.

Musk was careful to state, “This is not a matter of Tesla leaving California.” Indeed, he emphasized that all Model S and Model X cars are made in the Fremont factory.

However, when he was congratulating his China team for getting the Shanghai factory to make cars of the “best quality [and] lowest cost,” he did add “and also low drama,” presumably referring to the issues surrounding the mandatory factory closure at the beginning of the pandemic in California. He may have also been hinting at other possible issues that many manufactures in California have cited for moving production outside the state, including avoiding the rigorous air and water quality rules.

The experiences and rationale provided by Tesla mirror the findings of the Milken Institute’s 2021 study (pdf) of Best Performing Cities. That report said that Austin, Texas, is the third best-performing large city in America and that the San Francisco metropolitan area fell from first place in 2020 precipitously to 24th, and that San Jose fell from fifth down to 22nd. The region’s high home prices may have contributed to these declines in rankings.

In a study of 2020 population changes, Chapman University found that the No. 1 reason people leave California is high home prices and that the No. 2 reason is California’s high level of regulation compared to other states.

Furthermore, with proposals to increase California’s state-level income tax in discussion, now may have seemed like a good time for the senior executives of Tesla to all move to Texas, which has no state-level income tax.