top of page

Elon Musk’s threat to leave California could cost Tesla $1 billion — and be worth it



Tim Mullaney

[PHOTO: Workers assemble cars on the line at Tesla’s factory in Fremont. David Butow (Photo by David Butow/Corbis via Getty Images)

David Butow | Corbis News | Getty Images]

We all know that Elon Musk talks a lot — and loosely. But what would it take to back up his bluster about moving Tesla to Texas or Nevada?

The 48-year old CEO of Tesla has been bickering on social media with California and Alameda County officials about reopening Tesla’s Fremont, California electric car manufacturing plant, on which the electric carmaker is unusually dependent, since its only other auto manufacturing plant is the newly-opened Gigafactory outside Shanghai. Recently, Musk took to Twitter to threaten to take his company and go home, if by home, he means new digs in either Nevada, or locations where Tesla is reportedly scouting locations for a new Cybertruck plant, Austin, Texas and Tulsa, Oklahoma.

“The unelected & ignorant ‘Interim Health Officer’ of Alameda is acting contrary to the Governor, the President, our Constitutional freedoms & just plain common sense,” Musk tweeted. “Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately.”

Moving the company’s factory would cost at least $1 billion given the costs associated with building a new facility, and could take 12 months to 18 months, said Dan Ives, who follows Tesla for Wedbush Securities. More to the point, Tesla would have to relocate thousands of employees. The company had 48,000 workers when it completed its most recent annual 10-K filing with the Securities and Exchange Commission, but doesn’t say how many work in the Fremont plant.

California is ‘not worried’

The bigger problem would be the same as the reason Musk is so worked up about Fremont being closed for coronavirus in the first place, says CFRA Research analyst Garrett Nelson: it’s the only U.S. factory Musk has, and makes virtually all of the company’s vehicles for the U.S. market, including the old Model S and X lines, as well as the higher-volume Model 3 and the newly introduced Model Y crossover. Closing it any time soon would leave Tesla with too few options to build its products and generate revenue.

“We just don’t see it,” Nelson said. “It’s too expensive and they’re too dependent on the Fremont factory.” 

California Governor Gavin Newsom told CNBC he doesn’t see it, either. Speaking on CNBC’s “Fast Money” on Tuesday night, he said he is “not worried” about Tesla CEO Elon Musk moving the company’s operations out of the state “anytime soon.” 

“We’re committed to the success and the innovation and the low-carbon, green growth economy that he’s been promoting for decades and the state of California is accelerating in,” Newsom said in the “Fast Money” interview.

Tesla did not respond to requests for comment.

The company dropped its lawsuit against California’s Alameda County on Wednesday. The potential billion-dollar price tag for a move wouldn’t be the biggest problem. Tesla also would face potential manufacturing disruptions during the moving process. The right location, if Musk is serious about moving either headquarters or the Fremont plant,  would likely be next to the factory where the company builds its upcoming Cybertruck pickup. Tesla is reportedly sifting offers from Texas, Oklahoma, and potentially other states, to host the plant, which would also produce Model Y vehicles. 

That decision is expected to come soon, with Texas holding the edge, offering sites in the Austin area, where Tesla already has an engineering office,  said a report in green-economy Web site Electrek. 

“Texas is the biggest pickup market in the country, 50% bigger than California, which is No. 2,” Nelson said. 

Tesla closed the first quarter with $8.1 billion in cash and short-term investments on its balance sheet, after a year in which it established itself as solidly cash-flow positive. It also raised more than $2 billion in a stock offering in February. 

Tesla’s success scoring fat state incentives

The company is also known to be pitting states against each other to offer fat incentives for the Cybertruck plant, as it has done before, said Greg LeRoy, executive director of Good Jobs First, a nonprofit watchdog that tracks corporate incentive deals and believes many of them are wasteful. Good Jobs First says Tesla has taken $2.4 billion in state and local incentives for different projects, mostly in upstate New York where it built a large solar panel plant, and Nevada where its battery plant is located, and would likely seek subsidies to move headquarters or shift Fremont’s production elsewhere. 

When Tesla picked Nevada for its gigafactory battery plant near Reno in 2014, the company committed to pick up only about $2 billion of the $4 billion to $5 billion capital cost, according to Tesla’s 2014 10-K filing.  

Nevada gave the company $195 million in transferable tax credits in exchange for a commitment by Tesla and battery partner Panasonic to exchange at least $3.5 billion in the plant. If Tesla meets other targets, it can claim as much as $1.3 billion in state tax breaks over 20 years, most of it in sales and use tax abatements, according to Good Jobs First. 

The Fremont factory itself was initially financed in part by a federal loan guarantee as part of the 2009 economic stimulus, which Tesla later repaid to prevent Washington from cashing in warrants to buy stock at less than 1% of today’s stock price.

Car factories are major employers whose owners usually get states to make generous offers, LeRoy said. In Tesla’s case, incentives could include credits against Texas’ gross receipts tax that could, over time, obliterate much or all of its investment. 

Car companies can also often get sales tax breaks on materials or equipment used to build and outfit their factories, he added, and governments will often build infrastructure to suit them. Texas upgraded rail facilities to nab a Toyota pickup truck plant in San Antonio, which later helped the state convince Toyota to move its U.S. headquarters to suburban Dallas from California.

“There are two ways the pandemic may play out,” for state-sponsored incentives, LeRoy said. “Some states may finally say, ‘enough, we’re looking at a fiscal cliff.’ Others will go  the other way, [thinking] there aren’t going to be many big expansions available so we’d better come loaded for bear.”

Tesla could also make back its capital spend on lower operating costs, said Calandra Cruickshank, CEO of Statebook, a data provider to economic development organizations and private companies. Depending on how many jobs move, the company could capture hundreds of millions of dollars of operating savings, with big savings on production workers, who are 25% more expensive in Oakland than Austin, and electricity costs half as high,  she said in an analysis provided to

“If 10,000 employees moved and the company saved $25,000 per worker in payroll and benefit costs (which is not unreasonable given there’s zero personal income tax in Texas and in most places a lower cost of living), that alone would be $250 million a year year in savings, exclusive of any government subsidies,” said Mike Grella, former economic development director for, who is now head of  consulting firm Grella Partnership Strategies. 

Stock analysts think Musk is probably bluffing. Ives thinks that, if Musk is serious, the factory is likelier to move than the headquarters, partly because of the difficulty of replacing the white-collar workers at Tesla’s Palo Alto headquarters.

While Governor Newsom doesn’t think Tesla’s going anywhere soon as a corporation, Ives said given the high cost of manufacturing in northern California, he sees a business case. 

“Texas gives them a significantly shorter supply chain,” Ives said. That includes proximity to other auto plants, such as Toyota’s pickup plant in San Antonio, and car manufacturing operations throughout the southern U.S. that rely on more closely located industry suppliers, from Mexico and elsewhere, as well as stronger transportation network links. “The cost per vehicle could go down by 10% to 25%. The writing is on the wall that they are going to do more production in another U.S. facility,” he said.

Nelson thinks moving corporate would make more sense than auto manufacturing, mainly because of the cost to move a huge manufacturing facility or construct a new one, as well as productivity impacts, since Tesla may lose a number of trained workers in the process because workers and their families may not be willing to move. “We think Tesla will instead focus on building new factories in Germany and the U.S., and not tinker with disrupting operations at the plant which accounts for over 70% of their current vehicle production capacity,” Nelson said.


bottom of page