TSLA Tesla Inc

By Tim Higgins 

Tesla Inc. Chief Executive Elon Musk says he's ready to abandon California as the home of the electric-car maker and is taking his fight to reopen the auto maker's lone U.S. assembly factory to court after local government officials on Friday told the company it couldn't reopen amid efforts to fight the coronavirus pandemic.

While other parts of California are starting to reopen after shelter-in-place orders have shut down nonessential businesses since March, Tesla's factory is located in Fremont, near San Francisco, where local government authorities are taking a more stringent approach to fighting the Covid-19 outbreak.

Mr. Musk, via Twitter, on Saturday said: "Tesla is filing a lawsuit against Alameda County immediately. The unelected & ignorant "Interim Health Officer" of Alameda is acting contrary to the Governor, the President, our Constitutional freedoms & just plain common sense!"

The county health department didn't immediately respond to a request for comment.

Tesla initially fought to stay open in March when the local order was first announced but eventually relented under pressure, stopping production on March 23. It had hoped to resume manufacturing on May 4, a day after the shelter-in-place had been scheduled to be lifted but that order was extended last week through the end of May, sparking Mr. Musk to call such restrictions a violation of people's rights and equated them to fascism.

After California Gov. Gavin Newsom on Thursday detailed how the state would begin phasing in the reopening of some businesses, including manufacturing on Friday, Mr. Musk cheered the news on Twitter. The CEO sent a memo to his employees saying the factory would resume work on Friday. But hours later, the Alameda Public Health Department said in a statement that Tesla had been informed that it couldn't reopen yet.

Mr. Musk, a frequent user of Twitter, on Saturday said on the social-media site: "Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be dependen on how Tesla is treated in the future. Tesla is the last carmaker left in CA."

Gov. Newsom has said he supports local communities enforcing stronger shelter-in-place even as other parts of the state come online.

Mr. Musk in March said Tesla was seeking a site for a new U.S. automobile assembly factory in the middle of America, stoking speculation that Texas might be in the mix. "Incentives play a role, but so do logistics costs, access to a large workforce with a wide range of talents, and quality of life," he told The Wall Street Journal at the time.

Tesla began the year planning to boost deliveries more than 36%, though last month didn't reiterate the guidance when it announced its first-quarter results, and said it was too early to say what the impact of the Covid-19 heath crisis would be on its business.

In an interview with Joe Rogan's podcast released Thursday, Mr. Musk called the shelter-in-place orders a violation of the U.S. constitutional right to assemble. "I don't think these things stand up in court," Mr. Musk said. "We should be concerned about anything that is a massive infringement on our civil liberties."

The San Francisco area has won praise for its initial aggressive action to contain the coronavirus, which in March looked increasingly threatening to the community. Since then, a national debate has begun about when communities can open up again. Some U.S. states have eased restrictions.

Michigan Gov. Gretchen Whitmer on Thursday said auto makers and parts suppliers in that state could resume operations on Monday. General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV plan to resume production on May 18 at plants across North America.

An extended shutdown in California poses a risk to Tesla's effort to ramp up production of its latest car, the Model Y compact sport-utility vehicle, which Mr. Musk has said could overtake the Model 3 car as its bestseller. The success of the Model 3 has helped Tesla see rapid growth in the past two years. Tesla surprised Wall Street last week when it reported a small first-quarter profit, the first time in the company's 16-year history that it has been able to post three consecutive quarters of profitability.

While the company has said it has enough liquidity to weather the economic uncertainty, having most of its operations shut down could quickly consume its cash. On Friday, the company announced it had secured a more than $500 million working-capital loan in China to help expand its only other assembly plant located in Shanghai, which opened late last year.

That factory has given Tesla experience dealing with the coronavirus, Mr. Musk said this past week. He noted during the podcast that none of the company's 7,000 employees in China have died of the virus.

"Tesla knows far more about what needs to be done to be safe through our Tesla China factory experience than an [unelected] interim junior official in Alameda County," Mr. Musk said Saturday.

The threat to leave California underscores the pressure Mr. Musk is under and would mark a sharp shift for the company that built its image, brand and workforce in the Golden State.

A community of electric-car enthusiasts throughout California helped seed interest in the then-tiny startup that revealed plans in 2006 to sell a two-seat sports car. The state's tough emissions regulations also helped Tesla. An important part of the struggling company's revenue in its early years came from selling emissions tax credits. Tesla received them for its electric cars and could sell them to competitors who lacked the volume of zero-emission vehicles to avoid state penalties. Tesla's first-quarter profit, in fact, was largely helped by the sale of such credits, a practice that has been adopted elsewhere.

The acquisition in 2010 of the Fremont factory, a short drive from Tesla's Palo Alto headquarters, was a pivotal moment in the company's history ahead of going public

By making his public threat to leave California, Mr. Musk is following a similar pressure campaign against government officials that he has employed when fighting laws or regulations he has opposed.

In Texas, which protects franchise dealerships that Tesla doesn't use, he spent years trying to fight the law, though with no luck even as he succeeded elsewhere. In such battles with governments, Mr. Musk has tried to rally support among Tesla fans. He seemed to be doing the same on Saturday, telling a Bay Area Tesla ownership group on Twitter to "please voice your disagreement as strongly as possible with @alamedacounty."

Despite Tesla's battles in Texas, Mr. Musk has shown an interest in the state. Last week, during a call with analysts, he suggested that the company might announce plans for its future battery efforts at an event in Texas later this month. If Tesla moves its headquarters to the state, the electric-car maker would be joining Toyota, which decamped from its North America headquarters in California beginning in 2014.

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

May 09, 2020 16:10 ET (20:10 GMT)

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