Elon Musk threatens to exit California as Tesla sues over continued shutdown

Tesla will decide whether to keep producing cars in Fremont, California, based on how it is treated going forward, Mr Musk says

Tesla employees work on a Model S cars in the Tesla factory in Fremont, California. Tesla chief executive is threatening to pull the company's factory and headquarters out of the state. AP Photo

Elon Musk lashed out at the California county blocking Tesla from reopening its only US car plant, threatening to relocate operations to other states and cease manufacturing at the factory.

Hours after the chief executive tweeted that Tesla would sue Alameda county, which did not allow the facility to resume operations on Friday, the electric car maker filed a complaint with the US District Court in San Francisco. Tesla claimed the county’s health order violates due process and “puts businesses deemed critical to the nation’s well-being by the federal and state governments between a rock and a hard place”.

Mr Musk, who has called coronavirus-related shutdown orders "fascist", said Tesla will decide whether to keep producing cars in Fremont, California, based on how it is treated. The Bay area was the first region in the country to implement stay-home orders to contain the spread of Covid-19 and has been cautious about lifting them.

Alex Spiro, the Manhattan lawyer who helped Mr Musk prevail in a defamation case last year, is the lead counsel in the suit, which along with Mr Musk’s tweets ratchet up the pressure on California Governor Gavin Newsom and local officials.

Mr Musk, 48, arguably has been the tech sector’s loudest voice advocating for the reopening of the economy, drawing criticism from some peers in the business community and cheers from conservative political circles.

“Part of it is just frustration from the view of Musk and Tesla, given they are basically grounded around Fremont, which is the heart and lungs of their business,” Dan Ives, a Wedbush Securities analyst, said. Mr Musk was playing “a game of poker to put more pressure on the county to open up”.

Tesla has about 20,000 employees in the Bay area, including its headquarters in Palo Alto. The company announced internally in March that two employees tested positive for the virus but did not specify which office they worked in.

In a blog post on Saturday, Tesla said it has started the process of resuming operations and described its restart plan as “the result of months of careful planning and preparation”.

“Tesla is not an outlier, nor are we going against the grain,” the company said.

Mr Musk at first defied Alameda’s mid-March shutdown order and resisted pressure from the county and Fremont to idle the factory. While Tesla claimed it was an essential business, the county’s health officer disagreed and said the plant posed a public health risk. Much of the Bay area has since extended shelter-in-place orders through to the end of May.

Tesla’s factory employs roughly 10,000 people, including many who commute from outside of Alameda.

Lily Mei, the mayor of Fremont, said on Saturday she was increasingly concerned about the economic impact of Tesla and other manufacturers not being allowed to resume operations. She encouraged the county to engage with local companies to come up with guidelines to reopen.

“The Alameda County Health Care Services Agency and the public health department have been communicating directly and working closely with the Tesla team on the ground in Fremont,” the county said on Saturday.

“The team at Tesla has been responsive to our guidance and recommendations and we look forward to coming to an agreement on an appropriate safety plan very soon.”

In Palo Alto, where Tesla has its global headquarters, the mayor chimed in to voice his support for the company.

Following through on the threat to move Tesla’s headquarters and future programmes to Texas and Nevada, where the company has its battery plant, will be costly and challenging for Mr Musk but relatively easier than ending production in Fremont.

The factory is the only place in the world where Tesla makes the Model S, X and Y. The company purchased it from Toyota Motor in the wake of the global financial crisis for $42 million (Dh154m) and has sunk billions of dollars into the facility since then.

“The factory in Fremont was an all-stars-aligned opportunity for Tesla,” Ben Kallo, an analyst at Robert W Baird, said. “I don’t know if you can quickly say ‘I’m leaving'.”

Mr Musk has been scouting locations for a new US factory to build the Cybertruck model that Tesla plans to start producing late next year. He has hinted it could be constructed in Texas, where part of Tesla’s chip team is based. Mr Musk-led rocket company Space Exploration Technologies also has operations in the state.

Mr Musk encouraged his almost 34 million Twitter followers to voice their displeasure with the county and endorsed the idea that shareholders could file a class-action lawsuit. He said Tesla knows more than the county does about what needs to be done to safely operate its factory after having reopened its plant near Shanghai earlier this year.

When Mr Musk tweeted in March that Tesla was looking for places to build the Cybertruck, one analyst estimated the company could improve operating margins by 8 per cent just by building cars in lower-cost areas than California.

But an ugly breakup with the state could be perilous. Mr Musk risks turning off consumers who have registered more than 70,000 new Tesla vehicles each of the last two last years, according to IHS Markit. The company delivered almost 370,000 cars worldwide in 2019.

The state has supported electric vehicle purchases by offering rebates of as much as $7,000, with Tesla’s Model 3 and Y being eligible for $2,000.

“I think he’s at odds with the federal, state and local governments for most of this,” Mr Kallo said of Mr Musk. “Picking up and leaving isn’t really an option right now.”