Speaking at the Tesla shareholder’s meeting outside of Austin on Thursday, CEO Elon Musk announced that the electric vehicle and energy company would be moving its headquarters from Palo Alto to Austin.
Musk cited the high costs for employees in the Bay Area, specifically noting the difficulty in securing affordable housing within a reasonable distance of Palo Alto.
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“It’s tough for people to afford houses, and people have to come in from far away,” noted Musk. “There’s a limit to how big you can scale in the Bay Area. We’re taking it as far as possible, but there’s a limit how big you can scale it in the Bay Area.”
In the last few years, Musk has been increasingly critical of Californian business policies, noting, among other things, the higher cost of living and high tax rate. Musk himself also moved out of California last year, leaving his home in the Bay area for Texas.
However, Musk also added that he would not be abandoning California, and in fact would increase Tesla production in Fremont. Although not stated during the meeting, other Musk-related businesses would also remain based in California for the time being, including the Space X headquarters in Southern California.
Tesla has also recently introduced a number of other new developments in California, including the groundbreaking of a new factory in Lathrop, further indicating that Tesla will continue to have a large California presence.
Tesla departure follows Oracle, HP Enterprise, other big tech companies
Tech experts note that, despite many companies such as Oracle and HP Enterprise leaving California in recent years, it has largely been because of tax reasons, with nearly all other infrastructure and personnel in California remaining.
“There’s a Texas law, the Texas Economic Development Act, that instilled a lot of tax breaks for companies moving their headquarters to Texas,” San Francisco-based tech lawyer David Singth told the Globe on Thursday. “So you have a lot of companies, not just Californian mind you, moving there to take advantage of that. But the thing is, while the company pays less taxes, they keep most of their other things intact in their original cities and states. So basically this is just in-country offshoring if you really want to simplify it, with mostly wealthier higher-ups moving out.”
“A lot of people who moved out there are also moving back to California. Turns out, a lot of people don’t like Texas, largely because of things like the heat, but also now because of a lot of new laws coming into effect, like the recent restrictive abortion law there. So we’re probably not going to see many move outs in terms of people. The exodus is still happening, but other states options aren’t as rosy anymore. And if Texas continues to increase taxes, or decides to stop those tax breaks, the boom will end very suddenly. Same goes for Arizona and Nevada, who are also wrestling with higher tax increases.”
“It may seem huge, a move like this, but, right now, it makes economic sense, California still keeps most of Tesla, and it will hopefully encourage the state to do more to keep businesses and people inside the state and wait out the other states who are increasing their taxes. To be clear, California is awful in regards to taxation, encouraging business growth and other things like that. But with Tesla’s move today, it could be the wakeup call they need to do better. Maybe even get them to reverse their decision in time. If they want any chance at stopping the outflow, they need to begin now.”
Currently there is no timeline when the move to Austin is expected to take place, but it will likely come in the next few years.
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