Elon Musk announced on Twitter Saturday that Tesla will be suing Alameda County. The California county is blocking the reopening of Tesla’s Fremont car plant. Musk also said he’ll be moving Tesla headquarters to Texas or Nevada. He threatened to end all manufacturing in California as well, depending on the local government’s response.
California began reopening its economy Friday by loosening restrictions on some businesses, but an Alameda County official won’t allow the Tesla factory to resume operations. Elon Musk, who has called the lockdown measures to contain COVID-19 fascist, has finally reached the end of his rope.
Dan Ives, a Wedbush Securities analyst, said it’s a pressure campaign on Elon Musk’s part to get the California government to allow Tesla to resume building cars a soon as possible:
Part of it is just frustration from the view of Musk and Tesla, given they are basically grounded around Fremont, which is the heart and lungs of their business… a game of poker to put more pressure on the county to open up.
But Elon Musk followed through on his last wild announcement. If he makes good on this promise, it would add a lot of value to Tesla stock (NASDAQ:TSLA).
Long before COVID-19, many businesses were leaving California for Texas in a great “tax exodus.” In a 2018 Fox Business interview, Chuck DeVore of the Texas Public Policy Foundation cited Census Bureau statistics showing 114,000 people had moved from California to Texas in the previous five years.
The tax savings to businesses and individuals is enormous. California’s corporate income tax rate is 8.84%. It’s personal state income tax and higher costs of living also affect Tesla’s payroll. It has one of the highest state income taxes in the United States.
But Texas is one of the few states with no state income tax on personal income. And it has significantly lower costs of living than California, so Tesla could pay its factory workers less while allowing them to afford the same standard of life. And compared to California’s steep 8.84% corporate income tax rate, Texas has a nationally, very-low 1% business tax.
Tesla has turned a profit in the last two quarters. Elon Musk might be thinking about keeping more of that in Tesla’s coffers rather than share it with Gavin Newsom.
Industrial energy costs are a major variable cost in automobile assembly. So much so that carmakers have opened many of their new U.S. car plants over the past two decades in the southern states where these costs are lower.
Combined with lower costs of living, lower taxes, and anti-union “right to work” laws, states like Kentucky, Tennessee, Alabama, and Texas are ideal for making cars.
Tesla would merely be following the lead of other manufacturers like Toyota. The Japanese manufacturer assembles the Tundra and Tacoma in Texas. It makes passenger cars and small SUVs in Kentucky and Mississippi. Not bad for a Japanese “import.”
California industrial energy costs in Feb 2020 were 11.96 cents per kilowatt-hour. In Texas, they were less than half that at 5.4 cents per kilowatt-hour. Elon Musk could cut Tesla’s industrial energy costs by half, returning that value to Tesla stockholders.
Elon may be thinking more like an engineer than a politician.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered investment advice from CCN.com. The author holds no investment position in Tesla stock at the time of writing.
Last modified: May 10, 2020 2:33 PM UTC