– Your Sunday 5 Minute Read – Corporate Incentives

I’ve long since stopped doubting the capabilities of the talented Mr. Musk. And with the May 30th success of Space X landing astronauts on the International Space Station, I’m sure it won’t be long before we’re all travelling across the country in tubes via his Hyperloop (seriously, google it). We have an inside joke at my house when there is a seemingly large/insurmountable problem, ‘Give it to Elon.’

But back to the Billion. Yes, that’s what industry experts have estimated it will cost for Tesla to move its only North American plant from California to a new frontier, with the current front runners being Texas and Nevada. Wherever he goes, he will bring a boatload of jobs (est. 48,000) and unending innovation. This is attractive to any jurisdiction, and unsurprisingly, they’re lining up to make their pitch.

California Gov. Gavin Newsom doesn’t seem to be taking it too seriously. A Billion is a big hit, after all. But me? I would never bet against Elon. I know it’s ironic, but the one constant in the corporate world is change. Does anybody understand that better than the creator of Tesla, Space X, Hyperloop, etc…? From where I stand, it’s a big gamble, a Billion dollar one in fact, but Tesla, with a founder who isn’t afraid to risk it all, is holding  all the cards.

Dan Civiero, Managing Partner, GrantMatch™“

Your Move, Cali – Musk is Going All In.

The 48-year old Elon Musk, 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.

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.