Tesla is considering a headquarters move from Palo Alto, California, to Austin, Texas, according to recent statements by CEO Elon Musk. The electric vehicle manufacturer has already built a new factory in Austin, leading to speculation of an accompanying headquarters relocation.
A move would bring Tesla closer to its new manufacturing operations and potentially provide various incentives from the state government. However, California has been Tesla’s home for 18 years since its founding in 2003. Leaving Silicon Valley could distance the company from the technology talent pool that has supported its innovation and rapid growth.
Musk’s Reasons for Moving Tesla’s HQ to Texas
Tesla is considering relocating its headquarters to Texas following CEO Elon Musk’s dispute with Delaware’s judiciary system. The possibility arises after a Delaware judge voided Musk’s $56 billion compensation package, spurring Musk to criticize the state’s corporate law and court system.
Musk asked X’s social media platform users if Tesla should move to Texas. Over 87% of respondents supported the move, leading Musk to announce Tesla will promptly hold a shareholder vote on changing its state of incorporation to Texas.
The Benefits of Incorporating in Texas vs. Delaware
Delaware has been the preferred state of incorporation for major U.S. corporations for decades. The state offers an efficient legal system tailored to corporate law, tax incentives for businesses not operating in Delaware, and no state corporate income tax for companies that do not conduct business in Delaware.
However, Tesla may benefit more from incorporating in Texas, Elon Musk’s home state. Texas has lower business taxes and fewer regulations compared to Delaware. It does not have a state income tax, and its corporate franchise tax is based on a company’s gross receipts apportioned to Texas.
Texas Has Always Been Home To Tesla
While Tesla’s main manufacturing facility is in Austin, Texas, like many large companies, Tesla incorporated in Delaware due to its business-friendly laws and judiciary focused on corporate cases. However, Musk’s recent experiences with Delaware’s Court of Chancery have left him disgruntled. In 2022, the same Delaware judge ruled that Musk must honor his agreement to acquire Twitter for $44 billion.
Now, the judge has voided Musk’s sizable compensation package from Tesla, irking the outspoken CEO. In response, Musk tweeted, “Never incorporate your company in Delaware. I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.” Musk appears to prefer Texas’ more hands-off approach to business regulation.
Musk’s Criticism of Delaware
Elon Musk has been openly critical of Delaware following a ruling that voided his 2018 compensation package worth $56 billion. According to Musk, Tesla should immediately move to hold a shareholder vote to change its state of incorporation from Delaware to Texas.
Musk took to X, the social media platform he owns, to ask users if Tesla should remain incorporated in Delaware or change to Texas. Over 87% of respondents backed Musk on a move to Texas. In response, Musk posted: “The public vote is unequivocally in favor of Texas! Tesla will move immediately to hold a shareholder vote to transfer the state of incorporation to Texas.”
Texas Is More Favorable For Tesla as A Whole
While Delaware’s Court of Chancery is set up to specifically handle corporate cases and offers certain tax incentives, Musk believes Texas would be more favorable for Tesla. Musk has strong ties to Texas, with Tesla’s headquarters and his tunneling company, The Boring Company, based there. Musk has also spent nights sleeping on the factory floor of Tesla’s Texas facility.
Texas Attorney General Ken Paxton, though recently impeached on corruption charges, has pursued legal action against those Musk considers enemies. Musk has also publicly supported Texas in disputes with the federal government regarding immigration.
Musk’s Call for Shareholder Vote
Musk’s call for a shareholder vote and move to Texas comes on the heels of a Delaware judge’s ruling that voided Musk’s 2018 pay package as CEO. In response, Musk criticized Delaware on X, warning others not to incorporate their companies there and recommending Texas or Nevada instead.
Musk appears eager to proceed with changing Tesla’s state of incorporation, though even his supporters have cautioned that shareholders should understand the full implications of such a move before voting. While a move to Texas could benefit Tesla by aligning its legal incorporation with its physical headquarters, Delaware’s business-friendly Court of Chancery and laws have served many major corporations well.
Public Response on X
Given the support, Musk announced that Tesla would hold a shareholder vote to change its state of incorporation to Texas officially. “The public vote is unequivocally in favor of Texas!” Musk posted on X. “Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas.”
“Never incorporate your company in the state of Delaware,” Musk wrote on X. He recommended Nevada or Texas as alternatives for shareholders seeking more control. Evidently, Musk now wants to follow his advice regarding Tesla.
What Does This Mean for Tesla’s Fremont Factory?
Elon Musk’s push to relocate Tesla’s state of incorporation from Delaware to Texas raises questions about the impact on Tesla’s manufacturing operations, namely the Fremont factory in Northern California, where Tesla’s vehicles are built.
While a corporate relocation may change how shareholders and executives interact with the legal system, it likely will not directly impact Tesla’s physical assets and employees in other states. The Fremont factory has been central to Tesla’s success in manufacturing affordable electric vehicles at scale.
Reactions From Tesla Employees About the Planned Move
Elon Musk’s announcement regarding the potential relocation of Tesla’s state of incorporation from Delaware to Texas has elicited a range of reactions from employees. On the one hand, some view it as an opportunity for regulatory relief and lower taxes. However, others are concerned about the uncertainty it may bring.
A number of employees voiced support for Musk’s suggestion to move to Texas, citing the business-friendly climate and lower costs of living. As one engineer put it, “Texas would welcome Tesla with open arms. The lower taxes and reduced red tape would allow us to operate more efficiently.”
What Happens Next?
The move to Texas still requires shareholder approval. If approved, Tesla will complete the legal process of reincorporating in Texas and relocating executives and employees. The timeline for full relocation is unclear but may take 6-18 months.
Tesla aims to cause minimal disruption, but some high-level personnel may relocate to Texas with potentially significant compensation packages. Lower-level employees will likely stay in California. Tesla will have to balance maintaining operations in Fremont with directing the company from its new Austin headquarters.
