Opinion: Elon Musk is right. Tesla should leave California.
Updated: May 20, 2020
Opinion Editorial by Claudia Smajlaj
Though California was once a top state for businesses, restrictions placed on one of the most technologically advanced companies proves otherwise. Not allowing Tesla to resume operations will do more harm than good, for both Tesla and the state of California.
On Saturday, May 9, 2020, Tesla filed suit against Alameda County, California, after local officials prohibited Tesla from restarting manufacturing operations at its Fremont factory. Elon Musk had been preparing to get assembly lines running again on Friday by allowing a fraction of Tesla’s factory workers to return to work, but the county said the company “must not reopen” due to local restrictions on nonessential businesses. In a Twitter thread that same day, Musk tweeted “Tesla is filing a lawsuit against Alameda County immediately. The unelected & ignorant ‘Interim Health Officer’ of Alameda is acting contrary to the Governor, the President, our Constitutional freedoms & just plain common sense!” Following that tweet, Musk continued “Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will dependen [sic] on how Tesla is treated in the future. Tesla is the last carmaker left in CA.” In the file, Tesla is seeking to invalidate Alameda County’s closure order by arguing that it goes against the county’s health and safety guidance.
The truth of the matter is: Tesla’s best course of action is to move its HQ out of California, primarily due to restrictive laws and high state taxes from an overbearing government. In order for the company to flourish as it did before the Coronavirus pandemic, it needs to go to a state where economies are starting up again and shelter in place orders are less restrictive.
Moving Tesla HQ was an idea Musk had a few months ago that seemed to have gotten positive feedback. In February, Musk took a Twitter poll asking his followers if there should be a “Gigafactory” in Texas, to which 80.2% of voters agreed with him. Even Republican Senator Ted Cruz of Texas tweeted back "Come to Texas! We would welcome Tesla HQ in Texas. We love jobs & Texans very much want to open up & get back to work (while still staying safe & following sound science). We make lots of cars & trucks in Texas, and we'd love more!!"
Musk had planned on resuming operations regardless of opposition but was warned by the Alameda County Health Department that doing so would be a violation of the county's rules. Infuriated, Musk tweeted on May 11, 2020 “Tesla is restarting production today against Alameda County rules. I will be on the line with everyone else. If anyone is arrested, I ask that it only be me.”
We can clearly see the push and pull between politicians who want to keep people safe and argue that easing restrictions will facilitate the spread of the coronavirus, and businesses that want to save their companies and get the economy up and running again.
The county officials won’t budge, and Musk won’t give up. At this point, Alameda County needs to work with Musk so Tesla’s Fremont factory can run as safely as possible. Reopening the factory is entirely appropriate, and Tesla should be allowed to do so with no trouble from restrictive government orders. If many essential businesses have proven that they can successfully operate under safe conditions while maintaining social distancing practices, why should one of the greatest tech companies in the world not be allowed to reopen as well?
Tesla’s restart plan followed months of “careful planning and preparation,” and even released a list of safety protocols it would implement while working during the pandemic. Tesla also learned how to deal with Covid-19 through its factory in Shanghai, China, which proves that it would follow safety protocols and function without putting lives in danger.
Tesla is a critical employment base in California, not to mention it also pays an incredible amount of taxes to the state with the highest income tax in the country. California imposes an income tax rate of 13.3% on its highest earners. If Musk moved his primary residence from California, he could save hundreds of millions of dollars, if not billions, in income taxes in the coming years.
U.S. auto plants need to be reopened to meet increasing demand for vehicles as the economy begins to recover from the Coronavirus. Other auto manufacturers such as Ford, General Motors and Fiat Chrysler have plans to restart production at manufacturing facilities on May 18. Elon Musk is the driving force pushing for an earlier date.
AutoNation’s Mike Jackson told CNBC that “It’s entirely appropriate that the factories reopen. I fully support it. We need the vehicles. As a matter of fact, I would go so far as to say, I support Elon Musk. Tesla should open.”
The lack of production in Fremont cuts off Tesla’s revenue and is a big financial strain. Tesla lost nearly $700 million in the quarter ended March 31, one of its worst quarters on record. On April 24, the carmaker reported first-quarter net loss of $668 million on total revenues of $4.5 billion. On a conference call last month, Musk said the company only has assembly plants in Fremont and Shanghai, and the Fremont facility produces the majority of its vehicles. Some would see the closure of the Fremont facility as a very serious risk, but this is necessary for the company. Elon Musk is taking the steps necessary for Tesla.
Claudia Smajlaj is a rising sophomore at American University who is studying Finance in the Kogod School of Business. Claudia currently works at the Center for Business Communications (CBC) and is an on-staff writer for the DC Intervention.