Features
19 oct 21

US electric vehicle manufacturing heads down south

Electric vehicle (EV) manufacturing giant Tesla has been zeroing in on the US state of Texas owing to its business-friendly tax policy of less corporate regulations and lower income and employment taxes.

During a shareholder meeting earlier this month (October 2021), CEO Elon Musk announced that the company was moving its headquarters from Palo Alto, California to Austin, Texas. The meeting took place at Tesla’s vehicle assembly plant currently being built just outside of Austin, CNBC said in a report. 

The US$1.1 billion facility, slated to build the upcoming electric-powered Cybertruck, should be completed by year-end 2021 with production already underway. High-volume production is expected by late 2022.

Despite the headquarters move, Tesla still intends to increase production at its Fremont, California plant, most recently seeking to increase output at both its Fremont facility and its Gigafactory in Nevada by 50%, according to Mr. Musk.

Texas has been actively recruiting companies via its Texas Economic Development Act which offers tax breaks to put new facilities in the state. Other tech companies moving to the state recently (in 2020) include Oracle and Hewlett Packard.

California vs Texas

Although California has long been a hotbed for inspiring minds with innovative ideas and the launching of many tech startups, it does have more income tax burden on corporations and high-income individuals.

While the top-tier personal income tax bracket in California is 13.3% for taxable income over US$1 million a year, Texas has no personal income tax at all, according to San Francisco based CPA Yin McKee. Keep in mind that federal income tax is still due in both states. 

As for businesses, the California corporate tax rate is fixed at 8.84%. Texas, on the other hand, has joined the ranks of Ohio, Kentucky and New Jersey, calculating state tax based on gross receipts (modified) which average at some 1%, Ms. Mckee says.

In terms of payroll taxes, California has one of the highest state unemployment tax rates with a minimum rate from 1.5% against 0.45% in Texas. California also mandates employment training tax (ETT) at a current rate of 0.1 % and state disability insurance tax (SDI) at 0.9%. Texas has no ETT or SDI, says the accountant. 

Regarding sales tax, California’s state could reach near 10% (7.25% sales tax plus local and city taxes) while Texas comes in at about 8.25% (6.25% plus city and county tax maxing out at 2%).

Property tax, however, is more in Texas. While California could see approximately 1% (0.72% plus parcel taxes and fees), Texas property owners will pay 1.9%.  Keep in mind that property prices in California are usually more than double of that seen in Texas.

Texas, however, does ban the direct sale of cars and this forces auto makers to sell their vehicles through independent, franchised dealerships. Although Tesla is not happy with this, it already has experience with getting around similar legislation by exploiting loopholes. 

For instance, Tesla has set up their own store and service center on tribal lands in New Mexico.

Southern states with new electric vehicle, battery facilities

State

 

Company

Facility

City

Investment
US dollars


Total: $24bn

Alabama

Toyota Motor 

Mazda Motor 

Opened

Electric Vehicles soon

Huntsville

$2.3bn

Arizona

Lucid Motors

Electric Vehicles (EV)

Casa Grande (Phoenix/Tucson)

$300mn-$1bn

Arizona

Nikola Corp

Fuel-Cell E-Trucks

Coolridge
(Phoenix/Tucson)

$600mn

Georgia

SKI

two battery plants

first to open (2022)

Commerce
(Atlanta)

$2.6bn

Kentucky

Ford
SKI

two battery plants

open 2025-2026

Glendale
(Louisville)

$5.8bn

Oklahoma

Canoo Inc (startup)

Electric Vehicles

Pryor
(Tulsa)

$500mn

Tennessee

Volkswagen

EVs, starting with ID.4

Chattanooga

$800mn

Tennessee

Ford
SK Innovation

EVs & Batteries

F-150 Lightning (2025)

Stanton
(Memphis)

$5.6bn

Tennessee

General Motors
LG Energy Solution

EVs & Batteries

Cadillac Lyriq (2022)

Honda & Acura (2024)

Spring Hill

$4.3bn

Texas

Tesla

EV 
+ headquarters move

Austin

$1.1bn

                 (source: Reuters)


For tips and tricks to simplify the process of transitioning to EVs, including a 10-step guide to a greener fleet, download the Global Fleet Electrification White Paper.

Top Photo (copyright: Shutterstock)

Authored by: Daniel Bland