Are Tesla and Texas a Perfect Match? It’s Questionable.

Tesla’s move from Silicon Valley to Texas makes sense in a number of ways: The company’s CEO Elon Musk and the conservative lawmakers who rule the state share a libertarian philosophy of low regulations and low taxes. Texas also offers space for a company with great growth ambitions.

“There’s a limit to how big you can scale in the Bay Area,” Musk said Thursday at Tesla’s annual meeting held at a new factory near the Texas capital. “Here in Austin, our factory is about five minutes from the airport and 15 minutes from downtown.”

But Texas may not be the natural choice that Mr. Musk makes.

Tesla’s stated mission is to “accelerate the world’s transition to sustainable energy,” and its customers include many people who want sporty cars that do not emit greenhouse gases from their exhaust pipes. However, Texas is ruled by Conservatives who are skeptical or opposed to efforts to combat climate change. They are also vehemently protecting the state’s large oil and gas industry.

And despite the state’s business-friendly reputation, Tesla cannot sell vehicles directly to customers there due to a protection law Car dealerships that Tesla doesn’t use.

In February, a rare winter storm caused the Texas power grid to collapse, leaving millions of people without electricity and heat for days. Soon after, the heads of state tried – wrongly according to many energy experts – to blame renewable energies, a growing business for Tesla, for the blackout.

“This shows that the Green New Deal would be a deadly deal for the United States,” Governor Greg Abbott said of the blackout on Fox News. “It just goes to show that fossil fuels are necessary for both Texas and other states to ensure we can heat our homes in winter and cool our homes in summer.”

Mr Musk, who has lived in Texas since last year, appeared to take a very different view on Thursday, pointing out that renewable energies could actually protect people from power outages.

“I was actually in Austin for this blizzard in a house with no electricity, no lights, no electricity, no heating, no internet,” he said. “It went on for several days. But if we had had the Solar plus Powerwall, we would have had light and electricity. “

Tesla is a leading manufacturer of solar panels and batteries – the company calls one of its products Powerwall – which are used by homeowners and businesses to store renewable energy for use at sunset, higher electricity prices, or during blackouts. The company had $ 1.3 billion in revenue from sales of solar panels and batteries for the first six months of the year.

Mr Musk’s announcement that Tesla would be relocating its headquarters to Palo Alto, Calif., Contained few details. For example, it’s not clear how many workers would move to Austin. It is also unknown whether the company will have a research and development facility in California in addition to its Fremont factory, which is a short drive from its headquarters and which it will expand. According to the Silicon Valley Institute for Regional Studies, the company employs around 750 people in Palo Alto and a total of around 12,500 in the San Francisco Bay Area.

Updated

Oct. 8, 2021, 1:30 p.m. ET

After the power outage that killed dozens of people from hypothermia, smoke inhalation, and other causes, Mr. Abbott doubled fossil fuel consumption.

In a letter to state regulators in July, the governor instructed the Public Utility Commission to incentivize the state’s energy market “to encourage the development and maintenance of adequate and reliable energy sources such as natural gas, coal and nuclear”.

Mr. Abbott also ordered accelerated development of transmission projects to improve connections between natural gas, coal and nuclear power plants. Texas operates its own power grid, administered by the Electric Reliability Council of Texas, in part to avoid federal oversight. Many energy experts have said the deal restricted the state’s ability to import electricity from other countries in February.

The governor also ordered regulators to charge wind and solar energy suppliers “reliability fees” because, given the natural fluctuations in wind and sun, suppliers cannot guarantee that they will be able to provide electricity when it is needed.

The letter from Mr. Abbott made no mention of battery storage.

Texas has no clean energy mandates, although it has grown to become one of the nation’s leaders in the use of solar and wind power – mainly driven by the low cost of renewable energy. The state produces more wind energy than anyone else.

Tesla has also struggled for years to find a way to sell its cars directly to Texans.

Like some other states, Texas has long had laws in place to protect auto dealers by banning automakers, including Tesla, from selling directly to consumers. California, by far the company’s largest market, has long allowed the company to sell cars direct to buyers.

Tesla has showrooms across Texas, but employees are not even allowed to discuss prices with potential buyers, and the showrooms cannot accept or process orders. Texans can buy Teslas online and pick up the vehicles at its service centers.

Once the Austin factory begins production of vehicles, including a new pickup truck that Tesla calls the Cybertruck, those vehicles will have to leave the state before they can be shipped to customers in Texas.

Tesla has been campaigning for a law change for years, but has made little headway, largely because car dealerships in Texas have tremendous political clout.

State legislatures have proposed to amend this law, but efforts have been unsuccessful, even during the legislative term that ended this year. Perhaps once Tesla moves to Austin and starts producing cars at its factory with thousands of employees, Mr Musk could have enough political clout to get lawmakers to act. Texas lawmakers only meet every two years, however, so it would likely be at least until 2023 for the company’s customers to get a car straight from its factory there.

Michael Webber, a professor of mechanical engineering at the University of Texas at Austin, said Mr. Musk’s decision to move to Texas may have been influenced in part by the ability to pressure the state to change its law.

“The Texas auto market is the second largest auto market in America after California. So when you’re selling cars, it makes sense to be closer to your customers, ”said Webber. “The Texas auto market is particularly difficult due to the legal barriers outside of the cities.”

Susan C. Beachy contributed to the research.