Tesla Departs

The exodus of talented people and first-class companies from California continues.

Headline: Tesla to Move Headquarters From California to Texas, Elon Musk Says

Tesla is following in the footsteps of companies including Hewlett Packard Enterprise Co. —a descendant of what Bill Hewlett and Dave Packard started in a Palo Alto, Calif., garage—and Oracle Corp. , which moved their corporate headquarters to Texas earlier in the Covid-19 pandemic.

Tech companies were among the earliest to send employees home at the start of the pandemic, and a number of prominent players in the industry have allowed their employees to work remotely on a permanent basis. That shift has prompted many Silicon Valley employees and startup CEOs to relocate to other parts of the country for cheaper housing, less traffic and a better quality of living.

Mr. Musk nodded to some of those challenges, saying of the Bay Area, “It’s tough for people to afford houses, and a lot of people have to come in from far away.”

Comments:

1) Moving the corporate headquarters of a large public company is expensive because of the legal and financial complexity and goes beyond the obvious cost of relocating highly-paid staff and acquiring real estate. That Oracle, HP, and Tesla have chosen to bite the bullet, IMHO, says more about the undesirability of California than the appeal of Texas.

2) Losing an innovative company is an especially severe blow, because its new ventures usually originate close to the headquarters and stay there during the startup phase. Furthermore, because of its roadblocks to business, California is very unlikely to be considered as a location for expansion.

3) The future economic effects of losing a corporate headquarters are huge. Legal, accounting, banking, consulting, human resources, electronic data processing, and other services will all be purchased in Texas instead of California. Taxable "intangible" income (interest, dividends, royalties, licenses) attributable to the corporation will no longer be taxed by California.

4) Silicon Valley may still be the place to start a business because of the cross-fertilization of tech and venture capital know-how, but the examples of Tesla, HP, and Oracle show that the business should move out of California as soon as practicable.

5) Despite the devastation of its dining, travel, agriculture, retail and other high-touch industries, California has weathered the coronavirus' storm well, IMHO, because of the presence of high-market-cap companies in the Bay Area. The loss of Tesla alone is not fatal, but cracks have appeared in the foundation, I fear the collapse will be sudden, and I hope I'm wrong.