Tesla moves to Texas - Impact on real estate and economy

By: Taro Chellaram /Real Estate Articles/Jan 27, 2022

Tesla moves to Texas - Impact on real estate and economy

2021 was a big year for real estate in many ways, but the biggest news of the year came towards the end of it when billionaire magnate, Elon Musk announced his move from California to Texas. The news became official on the 1st of December when Musk announced that Tesla, Inc., has moved its headquarters to Austin. Since Tesla is not just a car manufacturing company but also deals with clean energy generation and storage, it is no wonder that its CEO decided to move it to the energy capital of the world!

Why Texas?

Why did Tesla move to Texas? For one, the laws in Texas regarding tax are far more relaxed in comparison to those of California. Texas has no policy concerning personal income tax, while California imposes a whopping 13.3%, one of the highest levied in the nation. Apart from this factor, the ever so important capital gains tax also helped Musk make this decision. According to reports, if Musk chooses to sell stocks for cash, then in addition to facing a 20% federal capital gains tax, he also has to pay a 13.3% capital gains tax to California.

Tesla isn’t the only company that moved investments to the lone star state. With auto companies like Toyota (Plano), Ree Automotive (Austin), and Rivian (Fort Worth) moving or being in talks about starting production in Texas, the state surely does look like an automaker favorite. Texas is most definitely on the road to becoming the next Silicon Valley, with a reported 35 companies moving or opening facilities since the beginning of 2020. This pushes the real estate market, especially the commercial aspect of the field by increasing demand for commercial land.

Elon Musk’s move to Texas is quite strategic. Benefits of relocation apply not only to the company or him personally but extend to include his employees as well. California is not an easy place to live, with its sky-high prices and tiny spaces. Most employees faced difficulties while looking for affordable housing options, according to Musk. Texas solves this problem with its affordable real estate. Musk also spoke about the benefits of moving to a substantially larger state like Texas stating, "There's a limit to how big you can scale it in the Bay Area. In Austin, our factory is like five minutes from the airport, 15 minutes from downtown."

California V.S. Texas?

When two states have the highest population and largest economies in the United States, there’s bound to be some kind of competition, and Texas seems to ‘one-up' California with this Tesla move. California has been the IT Hub and the economic giant of the country for many years, but Elon Musk believes that this very quality is what will lead to Texas overtaking it in the coming years. “If a team has been winning for too long, they do tend to get a little complacent, a little entitled and then they don’t win the championship anymore,” he said. “California’s been winning for a long time. And I think they’re taking them for granted a little bit.”

Elon Musk has not only moved headquarters but also residence to Texas and the two major reasons for this are SpaceX’s new Starship vehicle and Tesla Inc.’s new Gigafactory. The latter is under construction in Austin currently. Furthermore, there have been significant benefits offered to the entrepreneur by the Texas government including subsidies, predominantly property tax abatements, around $65.4 million for his company. California, on the other hand, had provided the company an approximate $15.6 million in state-level job development funding, according to reports. Texas Gov. Greg Abbott has also been heard claiming that Musk “consistently tells me that he likes the social policies in the state of Texas.”

Tesla’s move is a major win for the people and the government of Texas, as it means an increase in investments and job opportunities. Elon Musk announced, in one of his tweets, that "Giga Texas is a $10B+ investment over time, generating at least 20k direct & 100k indirect jobs." We know that this move will undoubtedly affect the economy and the real estate market of Texas. To what extent? Only time will tell.

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