Dear Elon Musk:
I almost never write open letters, but I’m doing so here to applaud your comments about the difficulty in doing business in California.
You stunned many people by saying you might move Tesla’s headquarters and vehicle manufacturing out of California when Alameda County refused to permit your Fremont factory to re-open in light of the coronavirus pandemic.
But your announcement didn’t surprise me at all. For many years I’ve witnessed corporate leaders and business owners giving up on California because of its harsh regulatory, tax and political environments. Some of the language they used in private can’t be published here.
I won’t take sides in the coronavirus-related dispute because I’m not a health expert. I would not endorse unsafe COVID-19 practices, but I think you deserve respect for the fact that you’ve already restarted your China factory after a temporarily close. That serves as an example of how you could reopen the electric-car plant in California in a responsible manner.
You said it well in your Tweet: “Tesla knows far more about what needs to be done to be safe through our Tesla China factory experience than an (unelected) interim junior official in Alameda County.”
Reuters reports that you’ve “worked out a thorough return-to-work plan that includes online video training for personnel, work zone partition areas, temperature screening, requirements to wear protective equipment and rigorous cleaning and disinfecting protocols.” I wonder if the California DMV is planning such efforts in its miserable and dirty offices.
Many business leaders have used the “final straw” phrase when describing their latest California difficulties, as you did when saying that “Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be depend on how Tesla is treated in the future.
Study Calculates Business Flight
I’m in the midst of updating a study on company migrations, which thus far finds that a minimum of 17,000 businesses have left California in full or in part from 2008 through 2019. The capital diversion totals $99 billion, a conservative number because only about 35 percent of the companies reported their relocation-related investments.
Another finding is that Alameda County over the last 12 years has ranked as the sixth highest California county in the number of companies heading out of state. The five counties with higher loss rates are Los Angeles, Orange, Santa Clara, San Francisco and San Diego, in that order.
Your factory in Fremont sits in the midst of a Metropolitan Statistical Area (MSA) with a super-high rate of out-of-state migration, an embarrassing second-place ranking statewide, as follows:
(1) Los Angeles-Long Beach-Santa Ana
(2) San Francisco-Oakland-Hayward (Fremont)
(3) San Jose-Sunnyvale-Santa Clara (Palo Alto)
(4) San Diego-Carlsbad-San Marcos
(5) Riverside-San Bernardino-Ontario
As you can see, your headquarters in Palo Alto is part of the third-highest MSA statewide for business departures.
You and I like Texas and Nevada. If you move manufacturing to Texas, you will be following a well-worn path. The Lone Star state has been the top destination for California companies for 12 years, followed by Arizona and Nevada. The business advantages are enormous as costs can be reduced by approximately 35 percent.
Clearly you are knowledgeable about the economic advantages in placing your multi-billion dollar facilities elsewhere – a rocket development facility in McGregor, Texas, a battery “gigafactory” in Nevada, the Starship program in Florida, and the SpaceX commercial Spaceport in Brownsville, Texas.
I’ll Name the Departing Companies
I wonder if you have been influenced by so many other companies moving their headquarters just within the last year. The brand names include McKesson embarking on a San Francisco-to-Irving, Texas move (that’s 500 well-paying jobs); Callaway Golf from San Diego to Salt Lake City; Mitsubishi Motors from Orange County to Franklin, Tennessee; Made in Space from Santa Clara to Jacksonville, Florida; and XoJet Aviation fleeing Sacramento for Fort Lauderdale, Florida,
Also, you may have noted companies in Alameda County relocating production in full or in part to distant locations – e.g., Clorox (Oakland jobs to Martinsburg, West Virginia), Air Quality & Services Inc. (Fremont to Garland, Texas), Deluxe Corp. (Oakland to Salt Lake City), Nexient (Newark to Dublin, Ohio) and RJR Technologies (Oakland to Phoenix).
Auto Industry Bales Out
I noted in the Wall Street Journal that you suggested Texas might be selected for a future battery facility. Also, If Tesla moves its headquarters to Texas it “would be joining Toyota, which decamped from its North America headquarters in California beginning in 2014” when Toyota shifted its headquarters from Los Angeles to Plano, Texas. You probably know that a large percentage of their employees wanted to move to Texas where housing affordability was a big plus.
You would be following many other auto manufacturers, which started big time back in 2006 when Nissan North America Inc. announced it was moving its Los Angeles headquarters to Franklin, Tennessee. A few years ago Honda moved its leadership team from Torrance to Marysville, Ohio. And Hino Motors moved its Long Beach assembly plant to Williamson, West Virginia.
Suppliers also left – Mishimoto Automotive (Ontario to Reno), Changan Automobile Co. Ltd. (an undisclosed California location lost out to Plymouth, Michigan), and Mipox International (Hayward to Malaysia, China and Japan).
Be Careful Where You Go
California’s punishing regulations, penalties – including hefty fines – and taxes are enough to motivate any corporate executive or business owner to relocate. But choosing your new home can be complicated.
For example, certain states are friendly to business while counties within them are best to avoid.
Some counties have representatives in Congress who have an astounding “0” legislative voting record from the National Federation of Independent Business. How can anyone vote against small business 100% of the time? Those same members also received an F rating from the National Taxpayers Union. How can anyone vote against sensible tax law reform or lower taxes 100% of the time?
I wonder if these Congressmen take cues from their radical California colleagues. In any event, no company should head to communities where they will be surrounded by voters who seem unconcerned about how their politicians harm decent companies and their decent workers.
In announcing your lawsuit against Alameda County, you said that their restrictive action is “contrary to the Governor, the President, our Constitutional freedoms and just plain common sense!” Well said.
I encourage CEOs to read your legal complaint so that they will see that “the County has asserted that violations of its orders carry criminal penalties, even though it lacks statutory or other legal authority to do so.”
Sadly, Alameda County’s contempt is commonplace. Countless stories are told about the injurious tactics employed against businesses throughout California.
Finally, Mr. Musk, I must say that I hardly expect California’s business environment to improve. I’m seeing more departures being announced early in 2020, such as Benchmark Electronics closing its San Jose plant and likely shifting jobs to Arizona. You can bank on the fact that the list of 2020 relocation announcements will grow.
Friendly states will welcome them with open arms, and you, too.
Joseph Vranich is the Principal of Spectrum Location Solutions LLC, a Site Selection firm that helps companies identify optimum locations to accommodate growth, to improve competitiveness, or escape difficult business environments. On such projects he conducts an in-depth analysis of taxes, labor rates, land or building availability, logistics options, regulatory climate, political stability and lifestyle factors.