Elon Musk Moves to Texas, Takes Jab at Silicon Valley

The Four Percent


Tesla Inc.

Chief Executive

Elon Musk

said he has moved to Texas, taking aim at Silicon Valley and becoming one of the highest-profile executives yet to leave California during the coronavirus pandemic.

He said relocating made sense with Tesla’s new factory being built in Texas. He lamented that California, in his view, had become complacent with its innovators.

Mr. Musk’s companies continue to maintain extensive operations in California, and other tech firms are expanding their presence there. Yet his decision to move underscores a growing discontent, particularly among wealthier tech professionals, with the cost of living in the state, a pre-pandemic real-estate crunch and clogged roads.

Taking up residence in Texas comes with personal benefits for Mr. Musk: The state doesn’t collect state income or capital-gains tax for individuals. The auto executive qualified this year for billions of dollars in stock-option compensation as part of a pay-package agreement, making him the second-richest person in the world.

During the spring, when Mr. Musk was sparring over coronavirus shelter-in-place orders that shut his factory near San Francisco,

California Gov. Gavin Newsom

told CNBC he was “not worried about Elon leaving any time soon” and the state was committed to the car maker’s success. “We may not be the cheapest place to do business but we are the best place to do business,” Mr. Newsom, a Democrat, said. Silicon Valley remains home to some of the hottest companies—

Airbnb Inc.

and food delivery company DoorDash Inc. are poised for multibillion-dollar public listings this month and are both based in San Francisco.

Mr. Newsom’s office didn’t immediately respond to a request for comment about Mr. Musk’s move.

The pandemic has upended some of the most coveted aspects of working in Silicon Valley: the relative ease of networking and collaborating with like-minded tech workers, startup founders and investors bellying up to the bar to hash out deals, or the perks of free meals, laundry services, massage and fitness classes on lavish corporate campuses.

Since Covid-19 struck, executives and employees have fled the San Francisco Bay Area for cheaper locales since remote working conditions have become the norm for many people. Last week,

Hewlett Packard Enterprise,

whose origins trace back to the founding of Silicon Valley, said it planned to shift its headquarters to Texas. The departures have led many tech leaders and industry watchers to question whether the geographic region is losing its position as the nation’s leading technology hub.

Palantir Technologies Inc.,

founded in the Bay Area in 2003, moved its headquarters to Denver this year. CEO

Alex Karp,

who co-founded the company, linked the departure to what he says is a view in Silicon Valley that is out of touch with American principles and societal needs.

During WSJ’s CEO Council, the Tesla chief said the pandemic could reduce the region’s impact and warned against “mind viruses” that harm dialogue on social media. Photo: Tobias Schwarz/ZUMA Press

Mr. Musk echoed that sentiment Tuesday, arguing the San Francisco Bay Area “has too much influence on the world.” That power is shifting, he said. “I think we’ll see some reduction in the influence of Silicon Valley.”

Mr. Musk made the comments from Texas during The Wall Street Journal’s CEO Council annual summit in an interview with Editor in Chief Matt Murray.

Palantir co-founder

Joe Lonsdale,

a venture capitalist, moved to Austin this year. The city has become an attractive alternative to Silicon Valley for tech industry professionals. He wrote in a Journal opinion article last month that California has turned into a place where “bad policies discourage business and innovation, stifle opportunity and make life in major cities ugly and unpleasant.”

Two other prominent conservative venture capitalists,

Peter Thiel

and

Keith Rabois,

have cited what they see as Silicon Valley’s liberal politics as reasons to relocate. Mr. Rabois said he is headed to Miami. Mr. Thiel has moved to Los Angeles.

California’s taxes underlie many of the complaints. Its personal income tax tops out at 13.3% for amounts over $1 million a year, the highest in the nation. Capital gains are taxed at a similar rate. Many who call the Bay Area home have expressed relief at the departure of tech professionals who have been blamed for driving up the cost of living and congesting the freeways.

Tesla’s new car plant, its first U.S. factory outside Silicon Valley, is slated to open in Austin next year. Mr. Musk’s rocket company, Space Exploration Technologies Corp., or SpaceX, has operations in South Texas, leading Mr. Musk to spend a lot of time in the state. He filed paperwork in late October to move his personal foundation from California to Austin, according to local records. The move was previously reported by Bloomberg.

Mr. Musk likened California to a sports team with a long winning streak, saying “they do tend to get a little complacent, a little entitled, and then they don’t win the championship anymore.” California, he said, “has been winning for a long time. And I think they’re taking them for granted a little bit.”

Mr. Musk has spent much of his life in California, choosing Fremont, southeast of San Francisco, for Tesla’s first U.S. factory. He has owned houses in both southern California and the Bay Area.

Many are loath to declare an end to Silicon Valley. Prior predictions that the wealthy tech elite would flee en masse to low-tax states haven’t come true. Large employers like Google-parent

Alphabet Inc.

and

Facebook Inc.

have been leasing more office space in the region recently, even during the pandemic.

And the Bay Area’s primacy as a headquarters for startups continues. During the pandemic—from April through early December—the region has been home to 26.6% of all U.S. early-stage startups receiving venture capital funding, according to data firm PitchBook. That is only slightly less than the 27.4% average since the start of 2017.

Mr. Musk broadly criticized government regulations as stifling startup creation and favoring monopolies or duopolies. He called for the government to “just get out of the way” of innovators.

Environmental regulations have buoyed his electric-car company. Tesla has so far this year earned $1.18 billion by selling government emissions credits to other auto makers.

Mr. Musk has criticized regulators in the past. He threatened to move Tesla’s operations out of California while sparring with authorities there in May, after local shelter-in-place orders required him to shut down his lone U.S. car factory as part of measures to slow the spread of the coronavirus. He criticized local officials at the time as “breaking people’s freedoms” by imposing the curbs.

The executive later filed a lawsuit against Alameda County, home of the Tesla factory, and defied local authorities by proceeding to reopen the plant, daring them to arrest him. The county eventually blessed the plant’s reopening and didn’t pursue an arrest.

Mr. Musk said last month that he had tested positive for Covid-19 after repeatedly playing down the risks of the illness.

TJ Nahigian, founder and managing partner at San Francisco-based venture firm Base10 Partners, said moving to San Francisco is now considered contrarian in tech circles. But he thinks the trend won’t always be so extreme.

“I believe the Bay Area will continue to flourish as the pre-eminent technology hub in the western world,” said Mr. Nahigian. “I think what could happen is the cost of living in San Francisco comes down, space becomes available, and a new crop of entrepreneurs come to the Bay Area as Covid starts to clear up.”

Mr. Musk’s critique of Silicon Valley comes despite a successful year for Tesla. The company said Tuesday that it would raise up to $5 billion through new sales of stock, the second time this year it is raising that amount of money to finance its expansion plans.

Mr. Musk said both Tesla and SpaceX retain large operations in California.

Write to Heather Somerville at Heather.Somerville@wsj.com

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