Although Tesla is currently the most valuable automaker on the planet, it isn’t doing everything right. Its flagship factory has always been an anomaly, for example. Located in Fremont, CA, the plant has been an economic boon for the San Francisco Bay area, but for the US auto industry, it’s borderline off the grid.
So last week’s news that CEO Elon Musk is moving to Texas, where Tesla is preparing to build a new factory, wasn’t exactly shocking. Musk has been bickering with both the state of California and Alameda County, where Fremont is located, for a while now. His complaints about COVID-19 restrictions were just the latest installment.
Tesla picked up the Fremont plant in 2010, paying just over $40 million for a factory that had been jointly operating by General Motors and Toyota (it was called “New United Motor Manufacturing, Inc.” or NUMMI, and before that, it was known as Fremont Assembly).
The liability for Tesla in California is location
NUMMI is a large plant and has served an expanding Tesla’s needs quite well as the company has expanded. But 2020 production is expected to max-out the plant’s capacity. So Tesla is bulking up: It brought a factory online in China in 2019, and has new plants slated for Germany and Texas.
The old NUMMI factory’s liability is its location, and there’s a reason it’s the only assembly plant left in California. The legacy US auto industry is concentrated in the Upper Midwest, and all newer factories had been built in the South, where labor laws don’t favor unions and where an extensive supply chain has developed over four decades.
Nobody in their right industrial mind would put a new car plant in California, so Tesla was an outlier. And now the company has somewhat corrected the imbalance with its Texas ambitions. That plant, Musk has said, will serve the eastern half of the US, but more importantly, it will be where the forthcoming Cybertruck is going to be built, right in the heart of pickup-truck-making country (both GM and Toyota have plants in the state).
As a former California resident and occasional Fremont visitor, I was personally delighted that Tesla had taken over NUMMI and was keeping the Golden State in the carmaking game. The whole arrangement, starting with Musk’s Silicon Valley provenance and extending to Tesla’s role in popularizing the electric car in a state that’s most definitely receptive to such forms of transportation, was quite satisfying.
However, one has to be objective about California’s desirability for auto manufacturing. Any serious carmaker should choose to be east of the Rockies and ideally south of the Mason-Dixon line.
By choosing Texas for its second US assembly plant, Tesla has finally started acting strategically like the dominant automaker it intends to be.
When it comes to automaking, Texas is bigger and brighter
Musk’s personal flip-off to California is largely symbolic. He has good reason to spend more time Gulfstreaming to Texas because that’s where SpaceX’s mission-to-Mars launch program is located. Texas has been a space state since the 1960s, so nothing crazy there.
You’d also assume that Musk would take an interest in supervising, as much as he’s able, Tesla’s first “clean sheet” US factory — a corrective to everything that’s wrong, from a production standpoint, with Fremont. Musk wants Tesla to go down in history for reinventing manufacturing, and the Austin-area plant should be the first chapter.
That’s the fun stuff. On the business side, Texas is a more overtly business-friendly to manufacturing than California. It’s unlikely that Tesla will encounter a lot of delays in getting the factory built, in terms of environmental reviews or government regulatory hurdles. And unlike what Tesla is dealing with in Germany, where the powerful labor unions are a significant partner in the auto industry, the Texas workforce is going to be non-union.
There are plenty of reasons to start a business in California, despite what some of the grouchier Silicon Valley types have been saying of late. But ultimately, there aren’t that many compelling reasons to establish a car factory there.
As for Musk actually living in Texas … well, he’s been selling off all his residences in California, and these days, he seems to spend much of his time jetting between the Bay Area, Los Angeles, Nevada (where Tesla’s battery factory is located), China, Europe — you get the idea. Citizen of the world and all that. The guy lives at cruising altitude.
That said, if he really does set up a house in the Lone Star State, there would be one aspect of the move that’s about more than business. California, with its emphasis on innovation, technology, and the green-economy future, was ideal for Tesla’s first few decades.
But Tesla has gotten big. And it’s future is bright. So as far as Musk’s swagger goes, his stars at night should be aligning deep in the heart of Texas.