Tesla’s Cybertruck Factory Move Continues Trend of Companies Migrating to Texas
Tech firms have been leading the stock market gains over the past two months. Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Facebook (NASDAQ: FB), and Netflix (NASDAQ: NFLX) are prime examples of these gains. Another tech company that has been on a roll recently is Tesla, Inc. (NASDAQ: TSLA).
The company reported $0.56 earnings per share in Q2, which was an increase of 16% from Q1. That’s a massive improvement from their year-end report from 2019 in which they reported a net loss of $4.92 per share. Tesla reported a gross profit of over $1.2 billion in Q2. A massive jump from Q4 in 2019 in which they had a gross profit of $566 million.
Despite the COVID-19 pandemic, factory shutdowns, and a decrease in automobile sales, Tesla is continuing to surprise investors. The stock hit a 52-week high on Monday, July 27th at $1,513.24, and currently is around $1,487.
While Tesla’s stock has fallen prey to stock option shorting and day traders, or “pajama traders” as many longtime investors, such as Jim Cramer, are calling them, the company has continued to increase their gross profit and in turn their market capitalization.
Musk is also famous for causing disruptions in the company's stock through his tweets, such as saying the stock price is “too high”. His tweets have caused pangs in Tesla’s stock price before. However, the company has outperformed both his tweeting habits and the current economic downturn.
Tesla Builds Cybertruck Factory in Texas
On July 22, the governor of Texas, along with Elon Musk, announced a Cybertruck factory will be built in Texas. Abbott said the “Gigafactory will employee thousands of Texans & be a cornerstone for next generation innovation”. Musk has said that anyone who is interested in working at the new factor should contact Tesla.
Elon announced back in May that he would be selling his property in California and moving out. However, the Fremont factory is continuing operations and the decision to build the Cybertruck factory in Texas was in the works before Musk’s statement.
California is home to many of the United State’s Fortune 500 companies, including Apple, Intel, Chevron, HP, and Wells Fargo. It accounts for 14.6% of the national GDP. It’s also home to many entrepreneurs and startup companies, but recently many companies have been moving out of California. In 2019, the U.S. Census Bureau reported net domestic migration loss in California of -203,414.
One reason they are leaving is because of the Sunshine State’s high tax rates. California has one of the highest tax rates in the country. A key difference between Texas and California is that Texas does not have a state income tax.
Tesla reported that their tax liabilities accounted for 32% of their gross income. Although Musk does not actually receive a salary income from his automobile/energy company, he would still benefit from the factory being built in Texas rather than other states with higher taxes. Musk would still benefit because his compensation comes in the form of Tesla shares.
Being compensated with shares in the company is common for many CEOs. But since Musk only receives compensation from his stock ownership, he is more invested in the financial performance of Tesla. One of the largest liabilities for companies is their tax bill. Taxes decrease net earnings per share, which hurts the value of the stock. The tax benefits of Texas would be immediately beneficial to Musk’s wealth, which is directly tied to Tesla’s stock price.
Musk is not alone in his decision to reap the tax benefits of Texas for his company. Joe Rogan, also, announced that he will be moving to Texas. This comes after Spotify signed a licensing deal with Joe Rogan for $100 million.
A number of California’s Fortune 500 companies have moved their business from California to Texas, including Charles-Schwab, Occidental Petroleum, and Core-Mark. The Lone Star State is now home to 54 Fortune 500 companies.