Background Information
Elon Musk is an influential and innovative entrepreneur who is behind multiple disruptive businesses and endeavours, includingTesla, Inc, PayPal and SpaceX.
California has, historically, been the epicentre of fame and fortune when it comes to technology companies, and Tesla offices and factories have been, until recently, situated around the San Francisco Bay area. In the midst of the limelight and success, the company’s CEO, Elon Musk, has made the surprise decision to move some of the operations elsewhere.
This move has been a huge talking point, since California is the state that Tesla has been associated with since the company’s creation in 2003. This shift could possibly mean a new beginning for the company, of which the effects have not been felt just yet.
Data and Perspectives From Experts
Data gathered from the state of California shows that Tesla has laid off 7,000 employees in the past few years.1 Tesla has been a long-term target of local environmental groups in California due to the company’s pollution of neighbouung areas.2
Experts in the field feel that this move is a logical one on Elon Musk’s part.The Californian housing market is one of the most expensive in the United States, and California also has one of the highest individual tax rates.3 Logan Smithson, an economist at Stanford University in Palo Alto, California, stated that “Elon Musk is in a perfect position to move the company when the economic conditions become unfavourable for it. Moving operations to a cheaper location like Texas or Nevada may be the best option for saving costs.”
Susan Land, the CEO of CalTech, feels that Elon Musk’s departure from California has had a positive effect on the state. She said, “This move may open up resources for other innovative companies to make use of, which can help to diversify the tech sector in California.”
Insights and Analysis
When analysing this move, one of the factors that played a role is government policy. The overcrowded and cramped living conditions of California are due to the lack of control over the corporate- residential balance. This, in turn, has resulted in very high rent fees and property prices, as well as an increase in the tax burden.4
Apart from this, the wage-cap has caused some employees to struggle to pay their bills, which may add to the lack of productivity when it comes to the workplace.5 Elon Musk has stated that this decision is, in part, to help his employees.6
The primary effect of this move would be that Tesla’s financial outgoings would become more manageable.The cost of living in other states is cheaper than in California, where the costs associated with power, labor and facility rent can be much more expensive.
Economic Impact of the Move
The economic impact of the move is still being estimated, but some analysts feel that it could be beneficial in the long-term.7 A senior economist at the University of California, Berkeley, David J. Smith, said that, “The sort of tax savings that Tesla could reap in states such as Nevada and Texas are substantial. This could help the company to remain competitive in the industry, whilst providing jobs in states that don’t traditionally have strong technical and technological sectors.”
The experts also agree that the move could result in increased revenues, related to the shift in production facilities and work environment. Experienced workers may be enticed to the new facilities, meaning that businesses in those areas could benefit from an increase in productivity from the sudden influx of new highly-qualified employees.
Own Impact on Tesla
The move, however, isn’t without risks for Tesla. The sudden relocation of some of its operations could cause some friction within the workplace, leading to a reduction in the production and delivery of its unit sales in the short-term.8 Furthermore, the company’s image and brand could be affected, as the Californian branch of Tesla is synonymous with the company, and people may associate the move as a sign of instability.
Nevertheless, Tesla is a company that has been around for almost two decades, and this move may allow the business to endure in a more stable and cost-effective way. The economic effects may not be felt immediately, but the reshuffling of operations to different states could prove to be a lucrative decision for the carmaker in the long run.
Environmental Impact of the Move
San Francisco policy makers and environmentalists had been pressuring Tesla and other carmakers to improve their environmental standards.9 One way this can be achieved is by locating their production facilities away from residential areas, which would be possible with the relocation to different states.
The effects of the move are still being assessed, and the possible outcomes are yet to be determined. However, this step could be the beginning of a new era for Tesla, where it can make use of cheaper resources and locations to increase their production and profitability.
Politics Involved In The Move
The decision to move Tesla’s facilities has had implications for both California and the new states that the carmaker is targeting for relocation. Tesla has been subject to criticism for the move since it is considered to be a negative PR stunt, and Musk has come under fire from policy makers in various states.
John Brown, the mayor of Austin, Texas, stated that “We do not wish for Elon Musk to have a free ride when it comes to taxes. In the current economic climate, we cannot risk giving the wrong impression.”10 This sentiment has been echoed by other politicians and policy makers in the other states that Tesla has targeted.
Potential Benefits of the Move
There are potential benefits that other states could reap if Tesla were to move its production facilities there. Jobs and investments could be generated as a result as, although the taxes imposed by the low-tax states could be low, the additional economic activity could balance out the tax income.
The move could also have a positive effect on host cities as, in addition to jobs, Tesla could inject capital into the area, mainly through its facilities and research centers. This could create synergies, benefiting the local population and businesses in the area.
Potential Drawbacks of the Move
As beneficial as the relocation of Tesla could be, there are potential drawbacks that go along with it. Local businesses may not benefit as much as one would expect, since the area would be subjected to a large influx of skilled workers, resulting in competition for resources.11
Furthermore, many of the resources in the location are finite, and Tesla could be taking away jobs from existing businesses. Additionally, the tax burden of the region could increase as the local authorities adapt to the arrival of large-scale industries such as Tesla.
