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Elon Musk announces Tesla is moving its headquarters from California to Texas

The announcement came at Tesla’s annual shareholder meeting on Thursday

Tesla CEO Elon Musk announced the company will move its headquarters to Texas during an annual shareholder meeting on Oct. 7. (Video: Reuters)

SAN FRANCISCO — Tesla will move its headquarters from Palo Alto, Calif., to Austin, CEO Elon Musk announced at the company’s annual shareholder meeting on Thursday.

Musk had hinted for months that a move to Texas could be imminent. He also started residing in the state — the country’s second largest and second most populous — where Tesla has ramped up a factory in Austin and where many of the operations for his aerospace firm, SpaceX, are based. Musk lashed out last year at California’s restrictive shelter-in-place measures during the coronavirus pandemic and their effect on the company’s ability to operate its largest production facility in Fremont, Calif.

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A move of the company’s corporate headquarters signals a major shift for Tesla, which traces its roots to Silicon Valley and has drawn from a lush environment of incentives for electric-vehicle buyers and green-energy initiatives to propel its growth. The company’s proximity to Stanford University has provided a rich landscape of engineers from which to choose — and its Silicon Valley location placed it within the radius of numerous technology companies, including Google, Apple and Facebook.

“I’m excited to announce we are moving our headquarters to Austin, Texas,” Musk said. “Just to be clear, though, we will be continuing to expand our activities in California. This is not a matter of Tesla leaving California.”

A message for the office of Texas Gov. Greg Abbott (R) was not immediately returned.

Erin Mellon, a spokesperson for California Gov. Gavin Newsom (D), defended the state’s policies and economic climate following the news.

”California is the birthplace of innovation, the 5th largest economy in the world, and home to the biggest ideas and companies on the planet – that success is not despite our progressive policies, but because of them,” Mellon said. “We stand up for our workers, public health, and a woman’s right to choose. These are California’s fundamental values, and we’ll continue creating more jobs than any other state, outpacing the nation’s economic recovery, and maintaining the lowest COVID-19 case rates in the country.”

Musk said Tesla has approached the limits of its capacity in California, though it will continue to grow in the state, aiming to increase its output at the Fremont plant by 50 percent. The Austin move, he said, gives the company the chance to build out in a location where there is ample space to support its growth. Capacity at the Fremont factory, where Tesla has more than 10,000 workers, has reached its limits.

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Tesla’s corporate headquarters occupies a lot in Palo Alto’s Stanford Research Park that had been the site of other companies, such as Hewlett-Packard. The area quickly became constrained as the company grew, with workers unable to park at the office and some shifting to other locations around the Bay Area. The location, at 350,000 square feet on 23 acres, was built to house hundreds of employees.

“Roughly 350 employees will work in Palo Alto initially, with space for up to 650 people at the facility,” read a Tesla news release at the time.

Tesla noted in its release that the move to Palo Alto and the build-out of the facility was funded in large part by Energy Department loans. The company noted how it had received nearly $465 million in low-interest loans “to accelerate the production of affordable, fuel-efficient electric vehicles,” precipitating its move.

In Fremont, meanwhile, Musk said Tesla arrived to a sprawling facility that it could hardly fill, where it was like “kids in parents’ shoes.”

“Now we’re like spam in a can here,” Musk said.

He added that Austin proved more accommodating for the pool of workers Tesla is aiming to attract to the company. The costs and constraints of the Bay Area began to be prohibitive, he said.

“It’s tough for people to afford houses and a lot of people have to come in from far away,” he said. “There’s a limit to how big you can scale in the Bay Area.”

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Mike Ramsey, automotive analyst with Gartner, said the decision reflected numerous business concerns — from the growth of the company to Musk’s place of residence and the escalating presence of his other company, SpaceX, in Texas. For many workers in California, however, he said, little would change.

“Texas — in my view — the main thing that it has going for it is that’s where the center of gravity has moved for SpaceX,” Ramsey said. “If you’re planning to put manufacturing there, it is a lower-cost business state than California, there’s no doubt.”

“It’s more than symbolic, but, you know, for a lot of people in California and people who work there, [that] probably won’t change,” he said.

The move would probably have an impact on how Tesla would approach California going forward, said Jason Schloetzer, a professor of business administration at Georgetown University’s McDonough School of Business.

“In Austin, they’re going to have a pretty large workforce there when that facility opens. I would anticipate they may consider drawing down production in California over the medium term,” he said. “It seems like a natural evolution of decisions they’ve made recently to relocate their business out of California.”

He cited Austin’s rapid growth, relatively young population and the presence of a major university with the University of Texas at Austin as factors that fell in the city’s favor. Texas has landed entities such as Oracle and Hewlett Packard Enterprise recently, in part by playing up its attractiveness to business.

“Texas is viewed rightly or wrongly as a business-friendly environment, and they’ve been actively trying to develop the Austin area as a technology hub,” said Schloetzer.

Musk threatened last May that a Texas move could be imminent during California’s shelter-in-place orders, which had prevented him from reopening Tesla’s main production facility in Fremont.

“Tesla will now move its HQ and future programs to Texas/Nevada immediately,” he wrote on Twitter in May 2020, though a move did not follow at the time. “If we even retain Fremont manufacturing activity at all, it will be dependen[t] on how Tesla is treated in the future.”

At the meeting, Musk laid out his vision for the Austin factory and touted its proximity to the airport and downtown.

“We’re going to create an ecological paradise here because we’re right on the Colorado River,” he said.