Tesla's Austin gigafactory has a huge, somewhat unseen, network of support facilities all across the Austin area. TESLA INC.

Austin Business Journal writes, "The impacts of the Tesla Inc. gigafactory in eastern Travis County can be felt all the way out to an inconspicuous warehouse in Hutto, a vast greenfield at the north end of Georgetown, a train rail line in Taylor and a sprawling industrial complex in Kyle and even a bus station in Killeen, where gigafactory workers are picked up for work each morning for a 150-mile round trip.

Those sites — and just about everywhere in between — are among the locales where the "Tesla effect" is coming to fruition, referring to how the company's headquarters relocation to Austin has spurred additional economic development in the region. That's either through direct investment by the company itself, Tesla suppliers moving here, or others in the electric vehicle industry locating here to get in on a growing industry hub.

Tesla and its suppliers operate under a veil of nondisclosure agreements, but the Austin Business Journal has identified at least a dozen examples of the "Tesla effect" since the company announced its gigafactory in 2020. That has resulted in thousands of high-tech manufacturing or research-and-development jobs, hundreds of millions of dollars of capital investment and hundreds of thousands of square feet of industrial space devoted to Elon Musk's most recognizable brand.

"Tesla is really the driver of the industrial market right now," said Omar Nasser, principal at Aquila Commercial LLC. "Tesla vendors, they've come in waves. There's another wave coming."

Examples of the biggest recent projects in the Tesla sphere are: the company itself taking more than 1 million square feet at Kyle/35 Logistics Park, supplier US Farathane Corp. taking an entire 410,000-square-foot building in Georgetown and Hanwha Advanced Materials LLC building a $100 million, 200,000-square-foot advanced high-tech manufacturing facility near Georgetown.

US Farathane Chief Financial Officer Jim Gregory said the Austin area is no doubt a growing market in the industry "because of the entrance of Tesla into the community." The company has roughly two dozen in vehicle manufacturing hubs in the U.S., Mexico and China.

But it’s also aided by the fact that two of its other customers — Toyota Motor Corp. in San Antonio and General Motors Co. in Arlington — are rolling out cars throughout the region and need suppliers close. The latter two were approaching capacity, and Tesla has added more volume.

"I think bringing Tesla into the market just adds ... certainly several hundred thousand vehicles that could come into the community," Gregory said. "That is the view of the market, that it's going to grow with the new Tesla gigafactory."

Perilous time for growth

All that investment is coming at a perilous time for the company and the electric vehicle market as a whole. Tesla reportedly laid off more than 10% of its global workforce on April 15, and nearly 2,700 jobs were cut in Austin. Sales of vehicles produced are down, and it's unclear if the company will go forward with a planned Mexico factory, which could have a ripple effect in Austin.

But even with the negative headlines, the Austin area remains well-positioned for success, said Joe McCabe, president and CEO of Auto Forecast Solutions. That's because of its cost structure and its reputation for being open for business. Plus, the Austin area has a warm climate that's ideal for building and direct access to other components in the supply chain in both the U.S. and abroad, he said.

The softening of the electric vehicle market was expected by analysts, and the fact that Tesla is "way out in the lead" compared to other electric vehicle makers is another good sign, McCabe said.

In addition, he said the possibility that Tesla will scrap its plans for a factory in Mexico could mean more production in the future at the Travis County factory. The company’s plans for robotaxis also could be a boon to the local plant, McCabe said.

"As long as Tesla fills all the plants they have, they're in good shape," he said. "Austin is very well-positioned to have a long-term relationship with Tesla."

McCabe said what's happening in Texas mirrors the "normal cadence of a plant," where suppliers make "circles around that plant."

"Texas is a great spot because there's more business and tax incentives than other states," McCabe said, noting that it was the cost structure that brought Elon to Texas in the first place. "Texas puts you more in the heart of the automotive supply chain."

That's evident with the growing number of suppliers in the metro. The Austin Business Journal's list is likely an undercount as Tesla and its suppliers tend to operate in silence, and the company did not respond to a request for comment.

Stacy Schmitt, Opportunity Austin's senior vice president of communication and external affairs, said a majority of the economic development group's current project pipeline falls into the industries of clean tech, automotive, manufacturing, distribution and semiconductor industries — all sectors Tesla's supplier network operates in.

Over the last three years, Opportunity Austin has seen a rise in companies in those industries choosing to relocate to Austin, she said. Having that high-tech industry making its way to the area should mitigate any impacts to the local economy that could be brought on by Tesla's struggles.

"The Austin region continues to be positively impacted by Tesla from the establishment of their headquarters to their vast network of suppliers. As national trends forecast a slower yet steady growth, the company is positioned to streamline operations and discover innovative solutions for themselves and likely also their supply chain," Schmitt said in a statement. "The Austin regional economy is made up of well-diversified industries and we are confident that collaborative efforts will continue to build a successful and resilient economy."

Wave's impact on space, workforce

Manufacturers are still preparing for another wave. It could have an impact on things like workforce. Before the layoffs, Tesla was operating with 23,000 employees in Austin and has reportedly gone as far as locales like Killeen to ensure they have enough workers to fill the factory.

While there has been a strain on the region's workforce, groups are working to mitigate the impacts of that, with workforce and development partnerships between trade schools, K-12 schools, community colleges, universities, companies, politicians and much more, according to Kevin Fincher, CEO of the Austin Regional Manufacturers Association.

He credited Tesla for being involved through efforts like helping stand up programs at Del Valle Independent School District to train prospective employees or partnering with Austin Community College to do the same. That not only prepares employees to work at Tesla but in manufacturing as a whole, he said.

"There was a lot of fear about how many employees they would pull out. But Tesla knew that and Tesla has made investments into the community to help address that," Fincher said, adding that some employees may choose not to work at Tesla or leave the company for other opportunities, strengthening the entire workforce. "That impact is important to understand in that Tesla is helping to create a much broader developed workforce.

He said those gaudy employment numbers can sometimes take away from the economic impact on communities or supply chains moving to the region.

"The important thing is to understand the full economic impact Tesla has, which is that ecosystem," he said, estimating that they have an 8-to-1 job creation ratio in either supporting logistics or manufacturing in the region. "That magnifying effect is important for the public to understand."

That gives him confidence that even with the current struggles of the electric vehicle market, Tesla continues to be an important part of the auto industry and is driving innovation, Fincher said.

"They are still relevant in this market and as far as the supply chain and ecosystem, we will continue to be every bit relevant going forward," he said.

That could also potentially put a strain on available industrial space. Nasser, of Aquila, said historically suppliers wanted to be within a 45-minute drive of Tesla in eastern Travis County. But now that the first wave has passed, they are putting more importance on things like speed-to-market and labor costs. Some are even setting up in San Antonio.

Perhaps the most important factors now are power capability, so companies can do things like power machines involved in manufacturing, and size, as suppliers are eating up all the buildings that are larger than 150,000 square feet, Nasser said.

He added that the low-cost car, "Project Redwood" as it is known, would drive a new wave of suppliers to the area. If the company moves forward with it, many of the large leases signed in the next six to 12 months will likely be tied to suppliers.

"If you ask right now what kind of tenants are driving the market, it's mostly Tesla related. Samsung-related, not as much right now," Nasser said. "So, we're banking on a lot of their suppliers to lease space, because we do have a lot of space on the market. That's wishful thinking maybe.""


Source: Austin Business Journal 

Written by: Justin Sayers

Published: April 29, 2024

Posted by Grossman & Jones Group on


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