Are Tesla and Texas a Perfect Match? It is debatable.
Tesla’s move from Silicon Valley to Texas makes sense in many ways: Company CEO Elon Musk and conservative lawmakers who run the state share a libertarian philosophy, favoring few regulations and low taxes. . Texas also has room for a business with big ambitions for growth.
“There is a limit to the size you can grow 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 five minutes from the airport and 15 minutes from downtown.”
But Texas may not be the natural choice Mr. Musk claims to be.
Tesla’s stated mission is “to accelerate the world’s transition to sustainable energy,” and its customers include many who want sports cars that don’t blow greenhouse gases out of their tailpipes. Texas, however, is run by conservatives who are skeptical or opposed to efforts to tackle climate change. They also fiercely protect the state’s large oil and gas industry.
And, despite the state’s business-friendly reputation, Tesla cannot sell vehicles directly to customers due to a law that protects car dealerships, which Tesla does not use.
Tesla’s move is not surprising: Mr Musk threatened to leave California in May 2020 after local officials, citing the coronavirus, forced Tesla to shut down its auto plant 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 Texas lawmakers, who have greeted him enthusiastically, are among the most resistant to the remoteness of the economy from the United States. oil and natural gas.
“It’s always a feather in the Texas hat when it comes to a business far from California, but Tesla is both intrusive and welcome,” said Jim Krane, energy expert at Rice University in Houston. . “It’s a clumsy juxtaposition. It is a state that derives a large portion of its GDP from oil and gas and here is a fierce competitor to this industry. “
In February, a rare winter storm caused the Texas electricity grid to collapse, leaving millions of people without electricity or heat for days. Soon after, state leaders sought – wrongly, many energy experts say – to blame the blackout on renewables.
“It shows how the Green New Deal would be a deadly deal for the United States of America,” Governor Greg Abbott said of the blackout on Fox News. “It just goes to show that fossil fuels are needed by the state of Texas as well as other states to ensure that we can heat our homes in the winter and cool our homes in the summer.”
Mr Musk, a resident of Texas since last year, appeared to offer a very different view on Thursday, suggesting that renewables could actually protect people from power outages.
“I was actually in Austin for that blizzard in a house with no electricity, no lights, no electricity, no heat, no internet,” he said. “It went on for several days. However, if we had had the solar plus Powerwall, we would have had lights and electricity.
Tesla is a leading manufacturer of solar panels and batteries – the company calls one of its products Powerwall – for homeowners and businesses to 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 revenue from the sale of solar panels and batteries in the first six months of the year.
Mr. Musk’s announcement that Tesla would move its headquarters from Palo Alto, California, came with few details. It is not known, for example, how many workers would move to Austin. It’s also unclear whether the company will maintain a research and development operation in California in addition to its Fremont plant, which is a short drive from headquarters and which it has announced will expand. . The company has about 750 employees in Palo Alto and about 12,500 in total 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, lower than California’s, to attract business. County officials have already approved tax breaks for the company’s new plant, and the state may offer more.
Over the years, California has given Tesla hundreds of millions of dollars in tax breaks, which Gov. Gavin Newsom noted on Friday. But because Tesla will continue to operate in California, it may still have to pay taxes on its sales in the state, said Kayla Kitson, a policy analyst at the California Budget & Policy Center.
Whatever incentives they offer Tesla, Texas officials are unlikely to change their support for the fossil fuel industries the company competes with.
In a letter to state regulators in July, Abbott called on the Utilities Commission to urge the state’s energy market “to foster the development and maintenance of adequate sources of energy. and reliable, like natural gas, coal and nuclear power ”.
The governor also ordered regulators to charge suppliers a “reliability” fee for wind and solar power because, given the natural variability of wind and sun, suppliers could not guarantee that they would be able to. provide electricity when needed.
Mr Abbott’s letter made no mention of battery storage, suggesting he saw no role for a technology that many energy experts say will become increasingly important in smoothing wind power production and solar. Tesla is a major player in this type of battery. 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 does not have clean energy mandates, although it has become a national leader in the use of solar and wind power, in large part due to the low cost of renewables. The state produces more wind power than any other.
Another issue that divides Tesla and Texas is the state law on how cars can be sold there.
Like some other states, Texas has a long history of laws to protect auto dealers by prohibiting automakers, including Tesla, from selling directly to consumers. California, by far the company’s largest market, has long allowed the company to sell cars directly to buyers, earning it more money than if it were to sell through dealerships. .
Tesla has showrooms all over Texas, but employees aren’t even allowed to discuss pricing with potential buyers, and showrooms can’t take orders. Texans can buy Tesla online and pick up vehicles at its service centers.
Once the Austin plant begins producing vehicles, including a new pickup that Tesla calls Cybertruck, those vehicles will have to leave the state before they can be delivered to customers in Texas.
Efforts by Tesla and some state lawmakers to change the law came to naught, including in the legislative session that ended this year. This is in part because the auto dealers have enormous political influence in the state.
Perhaps once Tesla moves to Austin and starts producing cars, Mr. Musk could have enough political clout to get the legislature to act. However, Texas lawmakers typically only meet every two years, so it will likely take until at least 2023 for the company’s customers to receive a car straight from its factory there.
Michael Webber, professor of mechanical engineering at the University of Texas at Austin, said Mr. Musk’s decision to move to Texas may have been influenced in part by the ability to pressure the state to change its law.
“The Texas auto market is America’s second largest auto market after California, so if you’re selling cars, it makes sense to connect with your customers,” Mr. Webber said. “The Texas auto market is particularly difficult outside of cities due to legislative barriers. “
There were already signs on Friday that some in Texas, including those involved in oil and gas and related industries, were happy to have Tesla because it could potentially employ thousands of people.
“This can only be positive for Texas because it brings more business to Texas,” said Linda Salinas, vice president of operations at Texmark Chemicals, near Houston. “Even though it’s not about fossils, it’s still a business. “
She said Texmark could even benefit from Tesla’s manufacturing operations in the state. “Texmark produces and sells mining chemicals to people who mine for copper, and guess what the batteries are made of? “
Pierre Eavis contributed reports. Susan C. Beachy contributed research.