Eureka! Tesla says California is still home - for its engineering HQ

[February 23, 2023]  By Hyunjoo Jin and Akash Sriram

SAN FRANCISCO (Reuters) - Elon Musk is not entirely abandoning California, saying on Wednesday that Tesla Inc will make the state its global engineering home, even though the electric vehicle maker's corporate headquarters are now in Texas.

Musk on Wednesday announced the news with the state's governor, Gavin Newsom, and the Tesla CEO later told CNBC that putting the engineering hub in California means it is "effectively a headquarters of Tesla."

Tesla in 2010 acquired a plant from a joint venture of General Motors Co and Toyota Motor Corp in Fremont, California, which it still operates and which will increase production this year to more than 600,000 vehicles, Musk said.

Still, Wednesday's announcement marked something of a shift for the billionaire CEO, who had criticized California's regulations and taxes harshly after he moved Tesla's official corporate headquarters to Texas in 2021.

The two states are political and business rivals. Democratic-controlled California, the most populous U.S. state, has more electric vehicles than any other and provided Tesla with tax incentives as it grew. Second-ranked Texas is known for relatively light regulation and is the heart of the nation's oil-and-gas industry.

Musk previously criticized California for "overregulation, overlitigation, overtaxation" and in 2020 clashed with local officials over closure of the company's Fremont factory due to COVID-19. Musk has said he has voted for Democrats in the past, but suggested voting Republican in the 2022 midterm elections. He did thank Newsom, a prominent Democrat, for buying one of Tesla's early Roadster cars.

New Tesla electric vehicles are seen in a lot at Tesla's primary vehicle factory after CEO Elon Musk announced he was defying local officials' coronavirus disease (COVID-19) restrictions by reopening the plant in Fremont, California, U.S. May 11, 2020. REUTERS/Stephen Lam/File Photo

"It is a reminder of the advantage of building on success in California and does suggest that Musk made a strategic mistake in moving his HQ to Texas," said Stephen F. Diamond, associate professor of law at Santa Clara University.

On Wednesday on CNBC, Musk said California should still be cautious about taxes and regulations.

For his part, Newsom, during the event, bragged that his state was the biggest manufacturing center in the nation, but he did not aim his remarks at Texas. "Eat your heart out, Germany," he joked, as the news came not long after Tesla said it would focus battery cell production in the United States in light of federal incentives in the Inflation Reduction Act. Tesla is one of the first companies to declare such a strategy shift prompted by the legislation.

"Given that the Bay Area in California is home to many leading tech companies, it makes sense for Tesla’s engineering headquarters to be located there as a way to attract top talent," said Seth Goldstein, an analyst at Morningstar.

The new Tesla engineering headquarters will be in a former Hewlett Packard building in Palo Alto. "This is a poetic transition from the company that founded Silicon Valley to Tesla," Musk said.

(Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru; Editing by Peter Henderson, David Gaffen and Matthew Lewis)

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