By: Mi Nguyen
Tesla, the multimillion automotive giant, is moving to Austin, Texas. The announcement was made by Elon Musk at a shareholder meeting on October 7th, after months of speculation and clashing between Elon Musk and California government officials. So, what is the motive behind this transfer – the COVID mandates enforced in California, or the benefits provided by Texas government?
Elon Musk had made his opinion no secret on the COVID pandemic and COVID mandates that are being enforced throughout the United States. At the beginning of the pandemic in March, Musk had tweeted “The coronavirus is dumb” followed by his prediction that the cases will be zero by April.
Both of his statements had been soon proven to be wrong as the pandemic still had not ended today in October of 2021, a year and six months after his prediction. Things obviously got messier when Tesla was forced to shut down its assembly line in Alameda Country, California due to local COVID mandates, for which Musk vowed to sue the county. The lawsuit was dropped by Tesla two weeks after, but Musk’s battle against California government officials did not end there. Musk was also heavily against the many mandates California had put on businesses and threatened many times to move Tesla headquarters to Texas. So perhaps, Tesla moving to Austin was bound to happen one way or the other.
But Elon Musk is only but one man, while Tesla is a huge corporation with many shareholders and their money at stake. Despite Elon Musk’s numerous tweets about not getting himself or his kids vaccinated, Tesla had announced a new lottery that encourages their workers to get vaccinated with prizes up to $10,000 every month. For Tesla, the move to Austin was more for the financial benefits. According to Hartman REIT, Texas’s combined corporate tax is 21%, one of the lowest in the United States, which could lead to the company seeing a 5%-7% increase in corporate profits. In addition to that, the corporate rent in Texas is also about half of other major cities like Chicago, Los Angeles, or Washington and a third of New York city, making Texas a lucrative area for Tesla to relocate and expand their headquarters.
Aside from the corporate benefits, Texas also has a much lower living expenses compared to big tech states like California. On average, the cost of a single-family home in Texas is half that of big cities like Los Angeles or New York. For that reason, Texas has been seeing more and more out-of-state residents moving into the area for a better living quality. Because of that, the labor force in Texas is increasing, making it easier for companies like Tesla to recruit talents to their company without paying an exuberant salary.
Tesla’s reallocation decision has been on trend with many other tech companies moving their companies from Silicon Valleys to Texas. With California’s increasing living expenses, tax rates, and COVID mandates, more and more huge corporates find it harder to operate in California’s expensive environment. In a time of declining global economy, moving companies to states like Texas or Tennessee seems like a smart choice for further growth and expansion.