Musk threatens to pull Tesla out of California over shutdown

Elon Musk lashed out at the California county blocking Tesla Inc. from reopening its only U.S. car plant, threatening to immediately move operations to other states and cease manufacturing at the factory.
The chief executive officer said Tesla will file a lawsuit against Alameda County, a day after its health officer said it wasn’t appropriate for the carmaker to reopen.

Musk, who has called coronavirus-related shutdown orders fascist, said Tesla will decide whether to keep producing cars in Fremont, California, based on how it’s treated going forward.

The tweets ratchet up pressure on California Governor Gavin Newsom and San Francisco Bay area officials who were among the first in the U.S. to implement shelter-in-place orders and have been cautious about lifting them. Musk, 48, arguably has been the tech sector’s loudest voice advocating for the reopening of the economy, drawing criticism from some peers in the business community and cheers from conservative political circles.

"Part of it is just frustration from the view of Musk and Tesla, given they are basically grounded around Fremont, which is the heart and lungs of their business,” Dan Ives, a Wedbush Securities analyst, said by phone. Musk is playing "a game of poker to put more pressure on the county to open up.”

Tesla has roughly 20,000 employees in the Bay area, including its headquarters in Palo Alto. The company announced internally in late March that two staffers tested positive for the virus but didn’t specify which office they worked in.

Musk at first defied Alameda’s mid-March shutdown order and resisted pressure from the county and Fremont to idle the Fremont factory. While Tesla claimed it was an essential business, the county’s health officer disagreed and said the plant posed a public-health risk. Much of the Bay area has extended shelter-in-place orders through the end of May.

Following through on the threat to move Tesla’s headquarters and future programs to Texas and Nevada, where the company has its massive battery plant, will be costly and challenging for Musk but relatively easier than ending production in Fremont.

The factory is the only place in the world where Tesla makes the Model S, X and Y. The company purchased it from Toyota Motor Corp. in the wake of the global financial crisis for just $42 million and has sunk billions of dollars into the facility since then.

"The factory in Fremont was an all-stars-aligned opportunity for Tesla,” Ben Kallo, an analyst at Robert W. Baird & Co., said by phone. "I don’t know if you can quickly say ‘I’m leaving.’”

Musk has been scouting locations for a new U.S. factory to build the Cybertruck model that Tesla plans to start producing late next year. He’s hinted it could be constructed in Texas, where part of Tesla’s chip team is based. The Musk-led rocket company Space Exploration Technologies Corp. also has operations in the state.

Lily Mei, mayor of Fremont, said Saturday she’s increasingly concerned about the economic impact as provisions haven’t been made for manufacturers like Tesla to resume operations. She also prompted the county to engage with local companies to come up with guidelines to reopen.

Officials in Alameda County did not immediately respond to requests for comment Saturday. In a statement Friday, the county said it welcomed the "proactive work” Tesla had done to craft plans that will protect employees and the community, but said it doesn’t meet criteria to reopen.

Musk encouraged his almost 34 million Twitter followers to voice their displeasure with the county and endorsed the idea of shareholders filing a class-action lawsuit.

When Musk tweeted in March that Tesla was looking for places to build the Cybertruck, one analyst estimated the company could improve operating margins by 8% just by building cars in lower-cost areas than California.

But an ugly breakup with the state could be perilous. Musk risks turning off consumers who have registered more than 70,000 new Tesla vehicles each of the last two last years, according to IHS Markit. The company delivered almost 370,000 cars worldwide in 2019.

The state has supported electric-vehicle purchases by offering rebates of as much as $7,000, with Tesla’s Model 3 and Y being eligible for $2,000.

"I think he’s at odds with the federal, state and local governments for most of this,” Kallo said of Musk. "Picking up and leaving isn’t really an option right now.”