Elon Musk’s Love-Hate Relationship with Texas

on September 12, 2014 at 10:00 AM

Texas Governor Rick Perry meets with entrepeneur Elon Musk Source: Governor Rick Perry

For months now there has been much secrecy and mystery surrounding the location of electric car revolutionary Tesla’s new $5 billion Gigafactory. The factory will supply cheaper batteries for the company’s Model 3 electric car and will be large enough to manufacture more lithium-ion batteries than the entire industry produces now. Due to its sheer scale, the factory is expected to reduce the cost of batteries by almost one-third and create close to 7,000 jobs directly and thousands more indirectly. 

Amidst all the rumors abounding, closed door meetings, and tax break wars, I wrote about Tesla’s search for the perfect factory location – of which Texas was in the running. Despite Tesla breaking ground near Reno, Nevada a few weeks ago, there was still speculation about where the Gigafactory might be located, and Texas’ chances remained somewhat alive.

But no more. Tesla indeed confirmed that Reno will be the home of the Gigafactory. This is great for Nevada’s economy, but as a Texan, it still feels like a bit of a blow – though I’m not surprised.

While Texas Governor Rick Perry personally lobbied for the Gigafactory to make its home in Texas, it doesn’t help that he’s at the helm of a state hostile to clean energy, despite leading the nation in wind power. Although I’m hopeful that future clean tech endeavors will come to Texas, the existing status quo needs to change to combat this hostility.  

Can’t buy a Tesla in Texas?!

Part of the reason Nevada was enticing to Tesla – beyond its direct rail access, wind, solar and geothermal energy resources, lithium mine, and not having a corporate income tax – is that the state allows direct sales of Teslas to customers. Texas does not.

As a brand built on creative destruction, Tesla has created a different business model for selling its cars, choosing to forego the overhead of middle-man dealerships. Texas state law, however, prohibits Tesla employees from discussing the price or any logistical aspect of acquiring the car, because it has no franchised dealer relationship. Prospective buyers must order the cars from California, which are “delivered in a truck with no company markings, per Texas law, and customers even have to unwrap their new automobiles themselves, because the law prohibits Tesla’s in-state representatives from doing, saying, or touching anything related to selling or delivering cars.” This means that neither you nor I can go and purchase a new Tesla today in Texas and drive it home. So because the auto dealerships lobby is so powerful, the electric car ingénue is treated like contraband. Not a compelling argument for the company looking to invest in a factory when it can’t even sell the very products it makes in the same state.

But surely in free-market-loving, conservative Texas this is just an oversight, right? No.

In the Republican-dominated Legislature, Representative Eddie Rodriguez (D-Austin) tried to pass legislation removing this barrier. House Bill 3351 would have allowed manufacturers like Tesla, whose sole product is electric cars, to sell directly to customers. But it was defeated. “I don’t know what role the current restrictions for direct sales played in Tesla’s decision to choose Nevada over Texas,” Rodriguez said in a statement, “but [Musk] envisions the need for many more gigafactories across the country, which means many more high-paying jobs. Accordingly, I plan to file my bill again next session so that our door will be open to future opportunities.” Perhaps it will fare better now that Texas has lost the opportunity for thousands of jobs.

What did Texas really lose?

Tesla CEO Elon Musk said, “The Gigafactory is an important step in advancing the cause of sustainable transportation and will enable the mass production of compelling electric vehicles for decades to come.” In areas like Texas, EDF is working to modernize the power grid so that people can generate the electricity they need for electric cars with solar power during the day, or wind power at night. This could potentially forego the need for foreign gasoline and fossil-fueled electricity. But part of the benefit of these batteries is their ability to store energy, which provides additional opportunities for consumer electronics and household electricity storage beyond vehicles, and represents a new market for Tesla.

Energy storage is the missing link for realizing the full potential of renewable energy. Storage guarantees that the energy produced by renewables is available at all times, even when the sun isn’t shining or the wind isn’t blowing. For example, storage can capture West Texas wind power at night when it’s most abundant and release that stored energy during the afternoon when demand for electricity is highest. What Texas really missed out on is the opportunity for the Lone Star State to lead the nation’s booming renewable energy and storage market.

Potential for other investments in Texas?

There is, however, an interesting calculus that may be at work benefiting Texas in the future. Musk still has a reason to have a presence in Texas: his other venture, SpaceX, which designs, manufactures, and launches advanced rockets and spacecrafts. Texas’ distinctive role in our country’s space program (Houston, known as Space City, is home to NASA’s Johnson Space Center) makes it an ideal and unique area for finding a workforce with the skills and experience needed to work on space explorations.

Under the Texas incentive plan, SpaceX will collect $13 million from the Spaceport Trust Fund to construct the Cameron County Spaceport Development Corp, in addition to $2.3 million that Gov. Perry offered through the Texas Enterprise Fund. The new Texas spaceport will mark an $85 million investment in the local economy and promises to create 300 jobs. In a statement, Musk said, “SpaceX is excited to expand our work in Texas with the world’s first commercial launch complex designed specifically for orbital missions.” Musk thanked local and state officials, including Governor Perry, for their efforts “to make this vision a reality.” Few other states could compete with Texas on this front.

So while I wouldn’t count out the opportunities for future Musk developments in Texas (who wouldn’t want a Hyperloop factory here?!) it would certainly help if Texas policies didn’t deter businesses from expanding the clean energy economy. The humble pie that Texas got served is a stark and clear cut example of the way things work around here. Other disruptive technologies, like renewable energy and demand response, fall victim to the same type of system that benefits incumbent, moneyed interests and discourages innovation in Texas. Hopefully, this high profile loss will shake up the status quo and encourage systemic change.

This commentary originally appeared on our Texas Clean Air Matters blog


Originally Published on September 10, 2014

The Energy Exchange Blog is a forum where EDF‘s energy experts discuss how to accelerate the transition to a clean, low-carbon energy economy. Follow them on Twitter here: @EDFEnergyEX