The writer is deputy executive director of Good Jobs First, a non-profit resource that promotes corporate and government accountability in economic development.

After a Delaware judge in January voided Elon Musk’s $56bn compensation as CEO of Tesla as “an unfathomable sum”, Mr Musk was up in arms. Vowing to get even, he moved his private SpaceX’s incorporation from Delaware to Texas.

Denouncing Delaware and polling his followers on X, he then announced he wants to make the same switch for Tesla. But as it’s publicly held, this requires a shareholder vote, which is set to take place at its annual meeting on June 13. 

Truth be told, Mr Musk’s SpaceX move wasn’t bold or even particularly interesting. There are lots of reasons to consolidate his operations in Texas, where he’s rapidly expanding his companies. Tesla shareholders should think twice before going down the same route, however. 

How companies choose a headquarters location isn’t rocket science. It’s based on factors including the executive talent pool for key functions such as marketing, finance and technology, plus transportation and quality of life. Proximity to existing operations also matters. Those business basics are why economic development subsidies are usually so wasteful: the public money is given to companies to do what they would have done anyway.

Similarly, how companies choose where to incorporate is not always difficult. Companies like Delaware because it offers non-jury, often-expedited court decisions and massive tax loopholes. Many set up a passive investment company there (whether Tesla does we can’t know for sure because these structures aren’t disclosed), allowing them to avoid paying state corporate income taxes in many states where they earn revenue. 

But Texas may offer plenty of advantages for companies too, including a lax regulatory environment and no state personal income tax. Company leaders are also keen on Texas’s new business courts, whose judges will be appointed by the governor.

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Tesla town

Incorporating SpaceX in Texas is a small part of Mr Musk’s growing presence in the Lone Star State. In recent years, the firm has expanded operations in southern Texas, apparently ready to fulfill Mr Musk’s dream of building a company town on the thousands of acres of land that entities and executives linked to him have bought outside Austin where Tesla is headquartered, according to the Wall Street Journal. In addition, his expansion of SpaceX’s spaceport near Boca Chica Beach near the Mexican border has reportedly pushed existing residents from their homes.

Then of course there’s Mr Musk himself, who in 2020 moved from California to Texas, where he can avoid state personal income taxes. The next year, he moved Tesla’s headquarters to Texas. He attributed the latter move to California’s worker protections early in the Covid-19 pandemic, but in truth, Texas offers many of the traits he and his workers seek. 

South Texas has cheap land and room for companies to expand. Around fast-growing Austin, the firms Mr Musk leads have access to a talented workforce fostered by the city’s good schools, cultural amenities, the University of Texas with its rich tech-incubation history, other tech giants nearby, and high quality of life. 

That’s actually one of the reasons Mr Musk chose Austin. But that didn’t stop the CEO from staging a pretend competition for his latest gigafactory with Tulsa, Oklahoma, where officials apparently spent an ungodly amount of money and time in a never-going-to-matter wooing effort that included the now-defunct TulsaforTesla.com website, site visits and extensive marketing efforts. That helped drive up Austin’s taxpayer contribution to more than $64m-worth of subsidies, according to data tracked by Good Jobs First. 

Indulging tantrums

In a couple of weeks, Tesla shareholders will get to vote on Mr Musk’s push to change its state of incorporation. There are reasons why most Fortune 500 companies are incorporated in Delaware, but shareholders may be loathe to anger their billionaire CEO.

Shareholders want the highest returns. It was a Tesla shareholder, after all, who initiated the suit against Mr Musk’s $56bn compensation. The judge ruled that its board members breached their fiduciary duty in awarding the record pay package. This was the same judge who forced him in 2022 to go ahead with his $44bn deal to buy Twitter, so he was extra mad.

Texas may be suitable for new factories. But it is more of a blank slate when it comes to corporate law (although state officials have been welcoming to Mr Musk, including attorney-general Ken Paxton). Given Delaware’s legal prudence, Tesla shareholders would be wise to stay put, rather than indulge a passing tantrum by their entitled CEO.

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