Why Elon Musk Is Moving To Texas?
By: Arslan Mirza
Tags: Elon Musk, Tesla, Electric Vehicles, Texas, California

The CEO of Tesla revealed at the CEO online summit in the United States this week that he has moved to Texas. This is not surprising. He has already obtained a Texas driver’s license and his personal charity fund has moved to Austin, the capital of Texas. But at the same time, Musk is quite critical of the government of California, thinking that California is like “A winning team, a little complacent about success, taking it for granted that sooner or later will lose the championship”.

The 49-year-old Musk is now at the pinnacle of his career, and it is also the most complacent moment. Although the SN8 heavy rocket launched yesterday exploded during a test flight in Texas, this did not compromise his position in the US business community. It is no exaggeration to say that Musk is now like Jobs more than ten years ago, becoming a new generation of innovative representatives in the American technology industry.

Several companies He founded and led have become iconic innovative companies in the United States

Tesla is the star of the electric vehicle industry and the world’s most valuable car company, with a market value of up to 500 billion U.S dollars, even the number of traditional car giants.

What Times says: Space X has become the pride of the American manned spaceflight industry; neuroscience startup Neuralink and the high-speed tunnel train The Boring Company are also at the forefront of their respective fields.

His career reached its peak, Musk’s personal wealth also continued to expand. Almost all his assets are shares and options in Tesla and Space X. As Tesla’s stock price has grown nearly eight times in the past year, Musk’s net worth is now close to 140 billion U.S. dollars, making him the second richest man in the world, second only to Amazon.

Founder and CEO of Amazon Bezos far surpassed the original top technology billionaires such as Gates and Zuckerberg. At the end of last year, Musk also admitted to the court in a defamation lawsuit brought by British divers against him that his personal wealth was about US$20 billion, but it was all equity and almost no cash.

Although the new pandemic in the past year has caused severe damage to the US economy, it has created a crazy stock market. Under the stimulus of the Fed’s unrestricted release of water, several major stock indexes have hit record highs, and technology stocks have even increased rapidly.

Tesla is the craziest stock. Musk had previously given up his cash compensation and tied his compensation completely to Tesla’s stock performance (granted by option). This choice brought him up to 100 billion US dollars in return.

Image by MichaelGaida from Pixabay

American dream started in California

Musk’s “American Dream” started in California. He was born and raised in South Africa and came to Canada, his mother’s hometown, at the age of 17. Musk chose to join Canadian citizenship for the convenience of studying in the United States.

After two years of transition in the Maple Leaf Country, he entered the Wharton School of the University of Pennsylvania.

In 1995, he came to Stanford to study for a master’s degree, but only two days later, he decided to give up his studies and start an entrepreneurial journey. Musk has the nationalities of the United States, Canada, and South Africa.

Musk’s entrepreneurial path caught up with the Internet stock bubble boom at the end of the last century. In 1999, he sold the four-year-old software company Zip2 to Compaq for $300 million.

He arrived at the first meal of his life

Then he founded the second online finance company X.com non-stop and merged with Confinity founded by Peter Thiel in 2000 to create PayPal, so He is also a joint venture of PayPal Founder. After Teal led PayPal to go public in 2002, it was sold to eBay for $1.5 billion that year.

Musk, who was just 30 years old, has achieved financial freedom and became a billionaire. While Teal turned to the venture capital industry, Musk continued his entrepreneurial path.

In 2002, he came to Los Angeles and founded Space X, and he also moved his family here. Two years later, he joined Tesla, founded by two engineers, as an investor, and since then began a two-city life in Los Angeles and Silicon Valley.

Like other super-rich people, Musk also likes Los Angeles, the ocean view of the mansions here, and the star life of Hollywood. He owns a total of seven mansions in the super-rich areas of Los Angeles and Silicon Valley, with a total value of nearly $150 million.

He has close contacts with entertainment stars, Leonardo and other environmentally-loving stars have become Tesla’s earliest customers and free spokespersons.

Musk has been with many Hollywood female stars and even got involved in the lives of “Pirates of the Caribbean” star Johny Depp and his wife Amber Heard.

Musk has lived in California for 25 years. He reached the pinnacle of his career here. The four major technology companies he led are all headquartered in California (two in Los Angeles and two in Silicon Valley).

He is obsessed with the star life in Los Angeles, and his family is here. Musk’s girlfriend, Canadian singer Grimes, also has a five-bedroom “small apartment” detached house in Los Angeles. The two have a son. Besides, Musk and his first wife have five sons, and the two share custody.

Tax avoidance is the key factor

It seems unlikely that he will leave California. But in May of this year, Musk suddenly announced that he would sell all his real estate, saying that “I don’t need cash, I only donate it to Mars and the earth. Wealth can be depressing and I will only consider renting in the future”.

Public information shows that at least four of these luxury houses have been sold (the sale of tens of millions of dollars of super-luxury houses will take a long time). Compared to the Tesla stock that he doubled several times, real estate is indeed Musk’s least valuable asset.

Musk’s dissatisfaction with California is mainly in two aspects

The high taxes of the California government and the preference for labor and environmental protection incorporate supervision. He did not avoid this point. When explaining why he moved to Texas, he publicly stated that Texas has no state income tax, while California has the highest state income tax rate in the United States (up to 13.3%, for people with an annual income of more than $1 million), and It is also considering raising the maximum tax rate to 16.8%.

Musk has not mentioned the more important capital gains tax. 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 (also the highest in the United States).

Not only does Texas have no state personal income tax, but also no capital gains tax. It is worth mentioning that Washington State, where Bezos and Gates are located, does not have state personal income tax and capital gains tax like Texas.

Specifically, Musk currently holds approximately $135 billion worth of Tesla stocks and options. If he exercises the option and fully cashes out all the stocks at the current price of $600 (of course, Musk can’t sell out the stock, this is a hypothetical situation), then he will need to pay up to $18 billion in capital gains taxes to California!

Now that he is a resident of Texas, he doesn’t have to worry about this sky-high tax

Musk’s personal wealth is directly related to Tesla’s stock price. So, when did Tesla’s stock price start to soar? It started in December of last year. In the past year, Tesla’s stock price has risen more than eight times, and Musk’s personal wealth has also soared.

If he had not considered this huge tax before, then Musk, who is now worth nearly 140 billion US dollars, really needs to seriously consider the issue of tax avoidance. Leaving California, which has the highest tax rate in the United States, is the most convenient way.

Image by Gerd Altmann from Pixabay

The super-rich are good at tax avoidance

No matter how rich they are, the super-rich will not miss the opportunity to legally avoid taxes. Moving to a low-tax state is the simplest and legal way. US President Trump is a master of tax avoidance.

To reduce taxes, he moved from New York to Florida. Because Trump originally had to pay the highest tax rates of 9% and 4% to New York State and New York City respectively.

To avoid taxation, Facebook Co-founder Eduardo Saverin even gave up his US citizenship (he was Brazilian and immigrated to the US at the age of 11) before Facebook went public and became a Singapore citizen.

Because Singapore’s personal income tax rate is only 22% at the highest (at the time the United States was close to 40%), and there is no capital gains tax, and there is no inheritance tax (the highest in the United States is 55%). Saverin's personal wealth now exceeds $13 billion.

In 2017, when President Trump came to power, the U.S. federal government passed a tax reform bill to reduce the maximum personal income tax rate (persons with an annual personal income of more than $415,000) from 39.6% to 37%.

Compared with other G7 countries, the highest personal income tax rates in France, Germany, Japan, and the United Kingdom all exceed 50%, and Australia is also as high as 47%

At the same time, the Democratic Party has always advocated raising taxes on the super-rich, even increasing property taxes, and using the new taxes to expand the cost of medical insurance and education for Americans.

This year, the newly-elected President Biden promised during his election campaign that he would return the highest tax rate to 39.6% and impose a social security salary tax of 12.4% on the excess. He also proposes to impose a capital gains tax of up to 39.6% on families with incomes of more than $1 million, instead of the current 23.8%.

Of course, whether he can successfully attack the rich depends on whether the Democratic Party can win the two Senate seats in Georgia

Some of the super-rich are legally tax avoidance, and donations to charitable funds are the most common method. In recent years, the super-rich is most enthusiastic about the Donor Designated Fund (DAF), which is like a fund management company that manages charitable funds for the super-rich personal charity fund.

DAF not only allows the super-rich to get huge tax credits but also retains the right to decide on the use of charitable funds.

Take Musk as an example. In 2016, Musk donated 1.2 million Tesla shares to his private charity fund. This asset was valued at US$260 million at the time and could be used as a tax deduction. The Musk Charity Fund donated 47.8 million US dollars that year, of which 37.8 million US dollars were donated to the DAF Fund. Google Co-founder Brin and GoPro founder Nick Woodman have both used DAF funds to avoid taxes.

Photo by Enrique Macias on Unsplash

Musk Forced to start work and resume production

Musk first announced that he would move to Texas in May this year. After the new pandemic broke out in the United States, Musk has repeatedly tweeted said that it is foolish to panic about the new virus, and he will never stop work because of the epidemic.

He certainly has his own reasons

Tesla was facing delivery difficulties at the time, and the shutdown of the factory would cause Model 3 to fail to be delivered, which would directly affect Tesla’s valuable cash flow and thereby affect Tesla’s stock price.

At the end of March, after the California government announced the suspension of production at home, the Tesla factory refused to obey the order to suspend production. It was not forced to close a week later until the government had repeatedly warned.

In early May, without the approval of the health department of Alameda County, Musk instructed the Tesla factory to forcibly start work and resume work, and announced in a high-profile manner that “If you want to catch people, catch me,” He even bombarded the California government’s epidemic control’s fascist behavior.

It was after the conflict broke out with the health department of Alami County that Musk announced that Tesla’s headquarters and the future factory will immediately be moved to Texas.

As for whether the Fremont factory in California will move, it depends on future treatment. But it’s the last car factory in California. What he said is the fact that due to California’s strict labor and environmental protection regulations, as well as high land and labor costs, major automakers have gradually moved their factories away in the past few decades of California.

On labor protection and labor union issues

Tesla is also facing increasing criticism in California. Musk has always resisted the organization of labor unions by Tesla workers, ignoring the safety and protection of Tesla factories, and requiring factories to work overtime to increase production capacity.

In California, which focuses on protecting the interests of workers, labor-management agencies have organized many protests against Tesla.

In the end, the California government acquiesced to Musk’s forced resumption of work and did not impose any punishment on this public violation of epidemic control.

However, the epidemic prevention conflict between Musk and the local government has also triggered a scramble from Texas officials. From Texas Senator Ted Cruz to Texas Governor Greg Abbott to local officials, everyone warmly welcomed the American business leader to Texas.

Image by Gordon Johnson from Pixabay

The two states are fighting in secret

California and Texas have been fighting openly for a long time. Being able to dig Musk from California to Texas is obviously a great victory for the Texas government. These two states not only rank among the top two in the United States in terms of population (40 million and 30 million, respectively) but also the two states with the largest economy in the United States (GDP of 3.14 trillion US dollars and 189 million US dollars respectively).

In terms of economic policies and values

California and Texas are the two core camps of the Democratic and Republican parties, holding high the banner of liberalism and conservatism.

The California government advocates high taxes, equality, and disadvantaged groups in large governments, and strengthen corporate supervision; while the Texas government advocates low taxes and deregulation in small cities.

At the beginning of this year, California even blocked Texas on the grounds of “discrimination against LGBT in Texas” and prohibited its civil servants from traveling to Texas. Texas chose to sue California in the Supreme Court.

Besides, Texas is a major producer of oil and natural gas in the United States and is not keen on new energy sources, while California is the most environmentally friendly and renewable energy government in the United States.

Unlike the California government artificially raising oil prices to promote electric vehicles, the oil-producing region in Texas is the most affordable region for oil prices in the United States.

According to the American Automobile Association (AAA) price, the current price of 87 gasoline in California is the US $3.182 per gallon, while that in Texas is the US $1.857, which is exactly the two extremes of the United States.

Texas does not have the state tax part of personal income tax, and the cost of living and salary levels are much lower than California

Texas corporate income tax and land costs are also lower than in California. According to statistics last year by Joe Vranich, a corporate relocation expert, a total of 13,000 companies have left California in the past eight years. Moving from California to Texas can save 30% of operating costs.

Except for Tesla, HP company also moved from California’s Silicon Valley to Texas

At the same time, to avoid high taxes and high housing prices, a large number of California residents are also relocating to Texas. In 2018 alone, 86,000 Californians flocked to Texas, an increase of 36% year-on-year.

But what’s interesting is that California residents came to Texas to avoid taxation, but many of them continued to support the local Democratic Party because of their liberal values.

Instead, they pushed up the base of the Democratic Party of Texas and turned Texas from a deep red to a deep light red. After getting a large number of new voters, the Texas Democratic Party even put forward the slogan “Turn Texas blue”.

from twitter.com

Texas Merchants for Employment

Over the past ten years, Musk’s private jet has been flying between Los Angeles and Silicon Valley every week. And now his fixed route has added Texas. Space X is currently conducting rocket tests in McGregor in central Texas and assembling rockets in Boca Chica in southern Texas.

Tesla’s $1 billion new super Factory is also under construction in Austin, Texas. This is Tesla’s fifth electric vehicle assembly plant. It broke ground in July this year and is scheduled to be put into production at the end of next year. It will mainly produce Model Y and electric pickup Cybertruck.

In July of this year, Texas Governor Greg Abbott, and Musk jointly announced the project. Austin won the Tesla factory project in competition with Tulsa, Oklahoma

The Travis County Government, where Austin is located, is facing the problem of tens of thousands of unemployed people. They also competed for Amazon’s second headquarters project in 2018 but lost to Arlington, Virginia, and New York City, which are close to the capital, Washington, DC.

Musk will never miss the opportunity to seek preferential tax policies from local governments on new projects. In 2014, Tesla’s Gigafactory project in Nevada received a total of $1.3 billion in tax deductions Nevada (the specific amount is directly linked to employment and taxes).

Amazon’s second headquarters is open to tender in the United States, inspired by the Tesla factory

According to local media in Austin, to secure the Tesla Gigafactory project, the Travis County government agreed to grant Tesla a tax deduction of up to $46.4 million. This company will create 5,000 jobs for Austin, but the wages of workers only need 35,000 US dollars to start, and labor costs are much lower than in California.

Musk promised that at least half of the workers will be recruited locally in Travis County

However, the Texas government is really interested only in attracting investment and building factories to solve employment. Due to strong opposition from the traditional dealership industry, the Texas government has been prohibiting Tesla from selling cars directly to consumers.

Their direct sales model is illegal in Texas. The 13 Tesla stores in Texas can only display products, and the clerk cannot even introduce prices. Of course, Texas citizens can buy Tesla online, but they cannot place orders in Tesla stores.

Last year, Texas even passed a bill that prohibits automakers from directly providing maintenance services in Texas, targeting Tesla.

In the end

I don’t know if Musk’s public show of love for Texas this time can push the Texas Assembly to lift this direct sales ban. Although he has publicly asked Trump to pressure China and accuse China of auto import taxes and restrictions on joint venture construction, as the Shanghai Super Factory project has received strong support from the Shanghai government, as Tesla’s sales in China have exploded, Ma Skr quickly became an old friend of the Chinese people and even danced on the spot excitedly.

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