Best & Worst States: The Elon Derby

The piece below is part of Chief Executive‘s annual Best & Worst States for Business ranking. Read the full report. 

Tesla’s plan to build a plant to assemble its all-electric pickup truck and Model Y compact sport-utility vehicle was the hottest topic in the economic-development community before the pandemic and recession chilled talk of business expansion. When the U.S. economy recovers, states are sure to jockey furiously for consideration.

The stakes may have gotten higher since a frustrated Elon Musk, Tesla’s founder and CEO, railed against authorities unwilling to let the company re-start its existing assembly plant in Fremont, California, in mid-May due to pandemic concerns. “Frankly, this is the final straw,” Musk tweeted in the midst of filing suit to re-open. “Tesla will now move its HQ and future programs to Texas/Nevada immediately.”

Many handicappers were already betting that Musk likes the idea of putting the pickup plant in Texas, America’s biggest truck market and where GM and Toyota already build trucks and large SUVs. “San Antonio was the runner-up for the gigafactory” for batteries that Musk built in Nevada, says consultant Dennis Cuneo. Now the two states may be able to battle it out to steal a much bigger prize, from California.

But there are other contenders for both the plant and—if the Musk really ditches California—to become the new site for production of existing Teslas as well. Georgia sits in the middle of an “auto alley” of suppliers, some of which supply batteries, and a Kia assembly plant. Josh Hunt, vice president of business development for the Michigan Economic Development Commission, argues that his state is best “because of the strong workforce we have and the level of engineering talent.” Meanwhile, Michigan-based startup Rivian, with a $500 million investment from Ford, plans to make all-electric delivery vans for Amazon in Normal, Illinois.

Musk’s mercurial management style and single-minded pursuit of his technology vision are among reasons that states might hesitate to enter the new-plant derby. Few companies that dangle such huge prizes are so personally controlled by their founding CEOs as Tesla. Amazon, where Jeff Bezos reportedly was deeply involved in its “HQ2” search in 2018, is an oft-cited comparison.

EV manufacture also requires 30 percent less labor than conventional automobiles. And it’s also possible Tesla’s electric pickup won’t gain traction with traditional truck buyers. Plus, how Covid-19 fallout will affect Musk’s plans is unclear.

But making a play for any piece of Tesla likely will still prove worth the effort for states that may witness slowdowns in the months ahead. Along with Tesla’s growth and maturation as a company, there are thousands of reasons as measured in jobs, and millions of reasons as measured in tax revenues, for governors and state economic development officials to pursue the new Tesla plant with everything they’ve got.