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What Does Tesla’s Move Mean for Oil-Dependent Houston?

Texas, the nation’s top oil-producer, is entering into the renewable energy world as Tesla begins construction of its Austin-based gigafactory. But Houston, which is dependent on oil companies, isn’t so welcoming.

(TNS) — Yellow bulldozers and dump trucks began moving dirt this summer on an expanse of land 15 minutes east of downtown Austin.

Over the next three years, Tesla plans to transform this former sand and gravel mine into its largest “Gigafactory” assembling electric-powered Cybertruck pickups, Model Y SUVs and semi-trailer trucks. The more than 4-million-square-foot electric-vehicle manufacturing plant — rising in the heart of oil country, where the gas-guzzling Ford F-150 pickup reigns supreme — is another sign of the accelerating energy transition that will have profound implications for Houston’s oil-dependent economy.

“It’s going to be a while before (sales of) EVs outpace combustion-engine vehicles, but it’s coming,” said Dan McDowell, president of InfoNation, a Sugar Land-based automobile data provider. “If oil companies are smart, if they want to survive well into the future, they’ll start putting charging stations in.”

Tesla’s push into Texas — the nation’s top oil-producing state — comes as countries, companies and consumers are increasingly moving toward a future with fewer fossil fuels. In a symbolic sign of the global energy shift, Tesla’s market value recently surpassed that of the Texas oil major Exxon Mobil, the world’s most valuable company just seven years ago. The California automaker is worth $442.7 billion, more than two and a half times Exxon’s market value of $166.7 billion.

Exxon, reeling from the worst oil bust in decades driven by the coronavirus pandemic, was replaced this week by California tech company Salesforce on the Dow Jones Industrial Average, a group of 30 key stocks that serves as a benchmark indicator of the U.S. stock market. Exxon’s exit leaves Chevron as the only energy stock on the Dow Jones index.

Demand for electric vehicles is expected to surge in the coming decade as Tesla and major automakers ramp up production and as battery technology continues to advance, helping to reduce prices and improve range. Industry leaders predict that the prices of electric vehicles will become competitive with those of gas-powered vehicles in the U.S. as early as 2023. An estimated 280 million electric vehicles are predicted to be on the roads globally by 2040, according to global energy research firm Wood Mackenzie.

The rise of electric vehicles is expected to reduce demand for petroleum products, such as gasoline and diesel. The International Energy Agency estimates that electric vehicles displaced nearly 600,000 barrels of oil products per day in 2019. That figure is expected to grow to 2.5 million barrels per day by 2030.

Major energy companies, including Shell, Chevron and BP, are investing in electric vehicle charging companies to diversify their businesses and to prepare for a low-carbon future.

American Petroleum Institute President Mike Sommers says, however, he’s not worried about Tesla’s rise nor the projected growth of electric vehicles wiping out demand for oil and gas. That’s because the electricity needed to produce and power EVs still largely comes from natural gas and coal power plants, he said. In addition, the plastics used in automobiles are derived from petrochemicals, he said.

“Anything that brings in new high-tech jobs like Tesla is good for Texas,” Sommers said. “But when you plug in a Tesla, you’re still using fossil fuels. It’s great the state is getting more jobs with Tesla, but this country is going to continue to depend on oil and gas.”

2.6 Percent and Growing

Tesla, under the leadership of billionaire Elon Musk, has driven the electric-vehicle sector in recent years, proving there is a burgeoning market for environmentally friendly vehicles and spurring major automakers to produce more electric vehicles.

Electric vehicles accounted for 2.6 percent of global sales last year and the coronavirus pandemic has blunted auto sales this year. But as nations have set emissions targets to combat the effects of climate change, the share of electric-vehicle sales is expected to grow to 30 percent by 2030.

Tesla sold a record 367,500 vehicles in 2019, accounting for more than a third of the year’s EV sales. In the first half of 2020, the company produced 184,944 vehicles and sold 179,387. Before the pandemic, Tesla sold 100 to 150 vehicles in the Houston area each month, according to InfoNation.

To meet the growing demand, Tesla has embarked on a major expansion of its so-called Gigafactories that manufacture electric vehicles, batteries and charging stations. Tesla has factories in Fremont, Calif.; Reno, Nev.; and Buffalo, N.Y., and is building plants in Shanghai, Berlin and now Austin.

Tesla said it was drawn to Texas because of its central location, which gives the California automaker easier access to the East Coast markets. Texas’ low-tax policies, Austin’s tech-centric workforce and the region’s proximity to auto parts suppliers in Mexico likely also played a role.

In addition, Tesla is receiving $61 million in tax breaks from Travis County and the Del Valle Independent School District under a 10-year economic incentive plan.

“Tesla is one of the most exciting and innovative companies in the world, and we are proud to welcome its team to the State of Texas,” Gov. Greg Abbott said in a statement.

Giga Texas, as Tesla has named the plant, is rising on 2,100 acres at State Highway 130 and Harold Green Road near Austin National Airport. It will be the company’s fifth manufacturing plant and the company’s largest. It also will feature a public park, a first for Tesla.

“We’re going to make it a factory that is going to be stunning,” Musk told analysts in July. “It’s right on the Colorado River, so there’s actually going to be a boardwalk where there’ll be a hiking and biking trail. It’s going to basically be an ecological paradise: birds in the trees, butterflies, fish in the stream.”

Tesla bought the Giga Texas site for $97 million in July, and plans to invest $1.1 billion in the plant. The company said it plans to hire 5,000 workers, paying an average salary of $47,000. The Tesla factory, like the Toyota truck plant did for part of the San Antonio area, is expected to be an economic engine for the Del Valle area of Austin, where the median household income is about $55,000.

Houston’s Bid

Austin wasn’t alone, however, in seeking to be home to the plant. When Elon Musk tweeted in May that he was looking to expand Tesla in Texas or Nevada because of his frustrations with California’s coronavirus response, Houston’s economic development groups sprang into action.

The Greater Houston Partnership reached out to Tesla, and Houston-based Howard Hughes Corp. produced a slick marketing video highlighting real estate opportunities in its local master-planned communities, The Woodlands and Bridgeland in Cypress.

Ultimately, Tesla chose Austin over Houston, likely because Musk already was familiar with the area because his private rocket company, SpaceX, has operations in MacGregor, north of Austin. Tesla, which also entertained economic incentive offers from Tulsa, Okla., did not respond to a request for comment.

“We had a concerted effort with the city of Houston and several leaders to really showcase why we thought Houston was a complete solution for Tesla,” said Susan Davenport, chief economic development officer for the Greater Houston Partnership. “I think Tesla had some experience in Austin. It was a great win for them.”

Although Tesla did not consider Houston, Davenport said the city has made strides in courting technology companies since Amazon eliminated Houston for the site of its HQ2 in 2018. Amazon’s decision prompted a lot of handwringing over the city’s inability to attract coveted technology companies and 21st century jobs. Houston was the largest city nationally to be taken out of the running for the e-commerce giant’s $5 billion campus and 50,000 jobs.

Amazon’s decision accelerated plans in Houston to further diversify its oil-dependent economy and woo tech firms. Rice University is under construction in the Ion, a startup hub in the former Midtown Sears building. Amazon, Google and Microsoft are opening offices in Houston. Most recently, Greentown Labs, a Massachusetts clean-technology startup incubator, announced plans to open an office in Houston. The city of Houston this year unveiled a climate action plan to reduce the city’s carbon emissions footprint by investing in electric vehicles and renewable energy sources.

“We are not backing away from the needs of the world around traditional energy,” Davenport said. “But as the world is trending toward clean energy, we want to highlight the fact we have the energy expertise to undertake that transition. Houston is the perfect solution for Energy 2.0.”

©2020 the Houston Chronicle. Distributed by Tribune Content Agency, LLC.

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