Tesla's Move to Texas Is Less About Politics, More About Business Prospects

Tesla's (TSLA 12.06%) headquarters move from California to Texas looks like a purely political move on the surface. However, there's a lot more going on with CEO Elon Musk and what Tesla is trying to accomplish long term, and politics isn't the real story. Fool.com contributors Jason Hall, Jeremy Bowman, and Nicholas Rossolillo discuss the marketing and sustainable energy goals behind Tesla's move in this Motley Fool Live segment from "The 5" recorded on Oct. 8.

Nicholas Rossolillo: I think Tesla's growth story remains intact, whether in California or Texas, China or Germany, or wherever they go to next. The company will be just fine.

Jason Hall: Well, Toyota (TM 1.07%) moved its headquarters out of Southern California to Texas. I guess maybe a decade now. It's been quite a number of years ago since the company left.

Rossolillo: They have a huge campus in Dallas, I think.

Hall: Yeah. Again, it's not surprising. I don't think in and of itself, this doesn't really affect my view of Musk because you just have to expect, he's going to be bombastic. I don't think he's necessarily all that different from a lot of other incredibly innovative, forward-looking CEOs throughout history have been. The difference is social media is, I think. You have a video of this guy, smoking a big fat joint on a podcast. I promise he is not the first CEO to have a conversation and smoke a joint with somebody. There's so much more that's in the public discourse.

I don't think there's really been changes of my view of Tesla. But I think I need to preface that with what my view is, because that's really really important. Tesla is an incredible company. What Tesla has accomplished has changed the automotive industry permanently. The bottom line is that big auto spent 20 years piddling with electric vehicles, and largely they were doing it just because there was a government mandate. If they got enough of them out there that we get some tax credits. That's what they did.

GM (GM -0.04%), you guys remember GM's little electric peashooter of a car? They only would do leases. They wouldn't sell them, and they insisted on getting them back. They got them back. I can remember there was an actress that had one, there was a big public spat that she wanted this car, she wanted to own it and eventually GM got it back from her. But nobody ever tried what Elon Musk there with the Roadster first and then with the Model 3. That's make something that's really fast. Take advantage of what you can do with an electric motor. They have great torque. The power band is super flat. Whether you're going to five miles an hour or 50 miles an hour, you press the gas, you get all this work immediately and they're fun and they're quiet. Then you charge a $100,000 for it and you make really good margins on it. Then you iterate and you repeat at scale, they've proven they can do that.

I also think Tesla has a huge lead in data for autonomous vehicles. But I don't think that's going to really make a big difference when it comes to how quickly autonomous vehicles are going to come to the route. There's so much of Tesla stock price right now that is based on the idea of these high-margin services revenues that it can generate from things like managing autonomous vehicle fleets, and I do think that's the future. I do think that's part of Tesla's future. I think that's part of probably GM and Toyota and Ford (F 0.08%) and some of these other automotive makers' future as well. I just think that future is probably a lot further out than a lot of money that's in Tesla stock thinks it's going to be.

I think that, that means that there could be a series of messed up expectations when it doesn't happen as quickly as people expect. That creates risk for investors whose time frame isn't long enough. If you can own Tesla for a decade, you make money. The risk profile is different. If you're looking at 3-5 years before, there's going to be thousands of autonomous vehicles out there operating, there's a really good chance you could lose money because the expectation is probably not going to be met. That's how I think about it. Jeremy?

Jeremy Bowman: Back to Tesla, Musk, as far as the move to Texas itself, I was reading he did an interview with The Wall Street Journal and he downplayed that he even wanted it to be a personal thing and they're reinvesting in California and expanding their Fremont factory and that stuff. He actually made the argument, the cost of living is lower in Austin, so it's going to be better for my employees and can be useful, the commute is shorter and that thing. But yeah, I agree that on balance it's not going to be a major factor with the company. But I think as far as Musk himself, I think he's really probably the best salesmen. I'd say with both the stock and the company and the brand that I think we've had this century, in the last 20 years. He's so intertwined with Tesla. There's 11 year hating guy for a lot of people.

Hall: There's very little middle ground for people tend to have very strong opinions one way or the other here. No doubt about that, Jeremy.

Bowman: Yeah. But, like you said, he and his company figured out electric cars in a way that nobody did before, and he was able to build a market for it too, which I think was not easy to do. That's part of the reason why the stock has done phenomenally over the last decade. But yeah, I think he's right, even the the social media thing, that's a new thing, smoking a joint with Joe Rogan. I remember I wrote something at the time after he did that. Not to sound like in narc, but I was like not, I don't have a problem with anybody doing that, but I don't know if that's behavior becoming of a CEO, but that's not the point.

Hall: You'll do it after the podcast is over.

Bowman: But I also think there's a market out there and people see it, like this guy is cool, Tesla is cool. Tesla is the Apple (AAPL 1.27%) of cars. It's going to be that, it might not dominate forever the way Apple is, but it has that brand power that Apple has, I think in that high-end consumer brand that is attractive, it looks good, people want it, and that's hard to achieve. Steve Jobs, you can put them in the same class with Musk, I think.

Hall: Yes, I think that's fair. I think it's a little bit ironic, that there's this culture personality that's like one of the wealthiest people on earth. Thumbing his nose at the establishment, no, he's the establishment, he really is at this point, but it is cool. Go ahead, Nick, please.

Rossolillo: I am just going to beat this dead horse a little bit. But I think there's a really important comment that one of our listeners just made, Brucer, that I think is often overlooked, because I think Musk is trying to downplay the road to Texas because it isn't necessarily about the politics either. They are doing a lot of work on the electric grid in the aftermath of the winter storm last year, putting batteries into the grid. They've got an AI algorithm that's like mopping up energy on the grid at low prices and storing it for later on.

We have to remember that Tesla is an energy company. Cars was like the first attack, like the first vector of attack, to go to sustainable energy. They're working on the electric grid and you have to move to Texas. Just a few years ago, Tesla's brand image was, it's this vehicle for like a certain segment of people that are environmentally conscious. Now, it's like a brand that people that like trucks are attracted to now too. The move to Texas, Jeremy, just to your point, Musk is a brilliant marketer. There are multiple reasons he made this move and I think politics ranks pretty low on that list of reasons why he made the move.

Hall: He's an artist and politics was basically the canvas to paint it on. I think that's a key thing there.