To The Moon

Tesla has the largest manufacturing operation in the Austin, Texas, area, according to ABJ research. Beyond that, the companies that are following Elon Musk to the region are "really adding a whole new sector and technology and product that is going to be driving change for decades." Hear from experts about how the Tesla effect is materializing, including the potential drawbacks.

When Elon Musk announced in July 2020 that Tesla Inc. would build a billion-dollar gigafactory in eastern Travis County, expectations were immediately through the roof.

Some called it a generational project for Central Texas. Others pointed to the economic boost the electric vehicle giant would provide to the region in the wake of the coronavirus pandemic. And almost everyone agreed it would have ripple effects across the region for years to come.

Two years later, some of that has come to fruition by at least one metric: Tesla has taken the top spot on Austin Business Journal's annual list of the largest regional manufacturers, based on its estimated 4 million square feet of space.

The wider "Tesla effect" is visible even farther down the list. At least one of the company's suppliers also made the ranking: No. 10 Simwon North America Corp., an automotive body manufacturer in Kyle. Others, such as CelLink Corp. in Georgetown and Plastikon Industries Inc. in Kyle, will be competing for space on next year's list.

In a couple of years, Tesla (Nasdaq: TSLA) has generated plenty of news in Austin. Musk moved the company's headquarters to the gigafactory from Northern California. Over the summer, he famously called the Austin plant a "money furnace" as production ramped up amid supply chain constraints. The company recently signaled it was retooling some products and achieved production milestones, such as producing in September its 10,000th Model Y SUV at the site.

Musk recently said on social media that Tesla was increasing production at its factories, despite the likelihood of an upcoming recession.

Representatives from Tesla did not respond to a request for comment, but others weighed in on the impact the company has — and could have — on Central Texas.

Ed Latson, CEO of the Austin Regional Manufacturers Association, said Tesla is already responsible for making the region "a destination for advanced manufacturing," adding that it has been exciting to see the project go from conversation to manifestation.

"I think you've seen delivery on creating one of the most advanced facilities in the world and a lot of suppliers follow to be near it," he said.

Latson added that Central Texas is "just at the start of it." The retooling of products and ramped up production should mean more economic impact on the way.

"Tesla really brought a lot of attention to Central Texas manufacturing and what they are doing here," Laton said. Furthermore, the companies that are following Tesla to the region are "really adding a whole new sector and technology and product that is going to be driving change for decades."

Gary Farmer, chairman of Opportunity Austin and president of Heritage Title Company of Austin, said Austin is "fortunate to have Tesla as a corporate citizen in Central Texas."

"Without question, Tesla’s move to Austin has created an incredibly positive impact on our local and regional economies," Farmer said in an email. "Tesla’s decision to locate in Austin created a magnet effect for automotive suppliers who need to be in close proximity to the Gigafactory. Additionally, we are seeing keen interest from other companies who want to be in or near the innovative ecosystem created by Tesla. We now have an entire economic sector focused on automotive manufacturing and innovation."

And the effect reaches beyond the Austin region. In August, Tesla leased 440,000 square feet of industrial space in San Antonio, according to CoStar Group data. San Antonio Business Journal reported Oct. 28 that, according to an unnamed source, the space was being used as a warehouse for manufacturing components supporting the Austin gigafactory.

Near the Texas Gulf Coast, Tesla earlier this year submitted applications for incentives to potentially build a lithium refinery. On an Oct. 19 call with analysts, Musk and other executives confirmed they were pursuing the refinery — Drew Baglino, Tesla's senior vice president of power train and energy engineering, said the company was "putting our money where our mouths are" in terms of lithium battery engineering.

But just what impact will Tesla have on a region long term? To get a better idea, it's worth looking at Reno, Nevada, where the company opened its first massive gigafactory in 2014 to build batteries.

Tesla employs thousands outside Reno, while other companies followed its lead locating in Northern Nevada. That list includes distribution and office space for likes of Chewy Inc., an online retailer for pet food; e-commerce giant Amazon.com Inc.; e-commerce retailer Thrive Market; and iPhone maker Apple Inc.

But with the jobs, so too have come a myriad of well-documented issues. The region has been plagued with affordability concerns, which are already familiar to Central Texas. Housing prices mean employees may have to commute long distances to work at Tesla's Nevada factory, a problem exacerbated by poor infrastructure as local governments were not fully prepared for the boom. Some small businesses have lost talent to the larger employers. A USA Today investigation also found many workplace injuries.

"The arrival certainly diversified and certainly had a big impact on the economy of Northern Nevada," said Ann Silver, CEO of the Reno-Sparks Chamber of Commerce. "But there may have been unintended consequences that were attached with it being here."

The full scope of the Tesla effect in Austin remains to be seen. Already the company has generated, by some estimates, thousands of direct jobs, plus many more indirect jobs from suppliers following Musk's company. The company has not provided a factory headcount but pledged in 2020 incentives applications to hire at least 5,000, and Musk has said up to 20,000 may ultimately work at the plant. More widely, EV makers and the companies that work with the industry have expressed great enthusiasm about Central Texas.

That includes CelLink, which makes wire harnessing technology for electric vehicles, and should begin operations soon at a 300,000-square-foot factory in Georgetown. Over the next decade, it could become the Williamson County city's largest employer if it reaches its goal to hire 2,000 people.

While CelLink CEO Kevin Coakley won't comment on Tesla, he previously told ABJ that one of the draws to the area was to be closer to customers.

"An overnight drive is such a huge advantage especially in today's supply chain world," he said. "The ability to deliver parts on time or just in time. It's turning out to be a massive advantage."

It's the same story in Kyle, where Simwon and Plastikon, a plastic parts manufacturer, are setting up shop. The former has launched operations and is expected to employ 400 people in about 500,000 square feet, while the latter is gearing up to launch and is expected to employ 200-plus in a 100,000-square-foot facility.

Simwon executives have also declined to discuss Tesla but lauded the location in the heart of a new automotive manufacturing ecosystem. Mark Petri, executive vice president of sales and business development for Plastikon, which also supplies Toyota Motor Corp., also labeled the location as being logistically good for business.

"Hays County is strategically located for our business operations, and when you add in the huge talent pool, the available building infrastructure and the accommodations made by the developers at Plum Creek, now was the right time for Plastikon to establish a new operation in the Texas Innovation Corridor," he said in a previous statement.

Other electric vehicle companies have flocked to the region, including REE Automotive Ltd. (Nasdaq: REE), an Israeli electric vehicle company that manufacturers chassis for varying sizes of vehicles. Its leaders plan to open a 125,000-square-foot plant in Pflugerville with about 125 employees.