Billionaire and Tesla CEO Elon Musk is mulling Texas for a major manufacturing plant to build the company's first battery-powered truck, but not all Texans, even those eager to jump into a next-generation vehicle, have warmed up to the vehicle's design. And that makes for an awkward romance as America's truck-buying capital, a state with an economy built on oil, woos what could be the state's biggest truck factory.
Brant Landry, a Dallas real estate executive with Landry Commercial who has owned a truck much of his life, doesn’t like the futuristic look of Tesla’s Cybertruck. He’s not the only Texan hesitant about the eccentric design. One of his business partners, Joe Whitmer, also a truck enthusiast, said the electric truck has some cool features like bullet-proof glass, but “it looks like a vehicle you'd see on 'Mad Max.'”
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These property executives use their trucks mostly to travel to appointments and ferry their families around Texas, where trucks are more than a showpiece for the six-car garage. In a state steeped for more than a century in the oil and gas industry, truck culture traces more to its rugged past than just helping executives cross rocky, rural communities with nodding pump jacks. Against this backdrop, Texas is competing with Oklahoma for Tesla's latest auto factory, with the winner claiming an important new industry and the real estate needs that go with it.
For U.S. automakers, trucks are a profitable segment of the industry with the ability for customers, for a cost, to customize their vehicles from length of the bed to interior finish to added technology features. Tesla is just one of several manufacturers racing to make the first all-electric truck, betting on an industry that is projected to grow in the United States as more consumers make the leap to green.
AAA, the nonprofit motor club, reports 40 million Americans plan to consider buying electric for their next vehicle purchase as stigmas around low speeds and charging lifespans wane. Prior to the pandemic, the U.S. auto industry expected to spend billions of dollars retraining workers and retooling production lines to shift gears to produce more vehicles that are all or partly battery-powered.
Trucks are among the biggest users of fuel on the market, and Texas accounts for the nation's largest share of truck sales. If Tesla picks Texas to make the Cybertruck, the plant would be the state's first electric vehicle plant and only the second full-size truck plant, offering a potential culture clash in America's oil production center.
Texas is the top U.S. producer for oil and natural gas, accounting for 41% of the nation's crude oil production and 25% of its natural gas production in 2019. Likewise, Texas is home to the headquarters of Fortune 50 traditional oil and gas companies such as Exxon Mobil Corp., Phillips 66 and Valero Energy.
Loyal Customers
The nation's two best-selling trucks, the Ford F Series and the Chevy Silverado, both have editions that are marketed specifically for Texans but are not made in the state.
Ford Motor Co., based in Detroit, tells its customers their trucks are “Built Texas Tough,” with a King Ranch model named after one of Texas’ most well-known ranches. Ford's F Series truck manufacturing operations are in Missouri, Michigan, Kentucky and Ohio. Ford’s closest competitor, Detroit-based General Motors, also caters to Texans with a Texas edition of its Silverado, which is made in Mexico.
"Pickup owners are the most loyal customers," said Tom Libby, who oversees loyalty solutions and industry analysis for IHS Markit, which tracks new and used vehicles in the United States.
An application filed with the state of Texas for potential tax incentives shows Tesla is eyeing a 2,100-acre site in southeast Austin to build a facility that would span 4 million to 5 million square feet. An official announcement is expected by the end of July. Tesla did not return multiple emailed requests for comment.
The facility is expected to make the Cybertruck, the company's first all-electric truck with the acceleration and speed of a sports car, as well as Tesla's Model Y SUV and other products. Trucks are now hybrids, meaning they typically use a combination of gas and electric power. Tesla and some rivals are now developing cars that rely solely on the electricity from a battery.
"The Ford and Chevrolet brands are very popular and have high loyalty among their customers," Libby added. "To keep customers, they take care of them, listen to them in redesigning products and stay a step ahead in terms of latest features and technology."
In fact, trucks are so important to Ford's bottom line that it only makes one passenger car model these days: the Mustang.
"Everyone acknowledges the contribution of the F-Series to Ford's bottom line is gigantic," Libby said. "The higher you can price a vehicle, the bigger the possibility you have of covering the costs.
"With pickups, it's the one category in the U.S. auto industry they are intent on remaining category leaders, but it's not just pride," he added. "It's primarily about the money."
Finding a Foothold
If Tesla decides to put its new Cybertruck plant in Texas, it wouldn't be the first California automaker to find a truck-sized foothold in the Lone Star State, making way for something potentially bigger.
The only full-size pickup truck built in Texas is Toyota's Tundra model, which is made at a 2.2 million-square-foot plant on a 2,000-acre site south of San Antonio. The Japanese automaker picked Texas for the plant in 2003, and since then it has led to $50 billion of economic impact with the creation of more than 2,800 direct jobs, according to city officials. In all, the plant represents roughly 7,200 jobs in the region, including a caravan of more than 20 of the automaker's suppliers.
The relationship between Toyota and Texas blossomed, and the automaker announced in 2014 it was relocating its North American corporate headquarters from California to Plano, Texas. The shift of Toyota's C-suite into a new corporate home on a $1 billion, 100-acre campus included the relocation of 4,000 high-paying jobs and was solidified with the help of a $40 million economic incentive grant from the state's deal-closing fund as well as local incentives.
Toyota has also been reinvesting in its infrastructure in Texas. In the next two years, Toyota plans to spend at least $391.8 million in upgrades to the San Antonio plant to help shift its operations at the plant to focus not only on the Tundra, but also on the Sequoia, a full-sized sports utility vehicle. In turn, San Antonio offered an eight-year tax abatement totaling $9.7 million. The plant now produces the Tacoma, Toyota's midsize truck, and in late 2021, those operations are expected to shift across the border to a plant in Mexico.
Texas plays an important role in what the governor's office calls a realigned "auto alley" in North America next to the Mexico border, with distribution capabilities throughout the U.S. South and Midwest. Not only is the state home to Toyota's truck plant in San Antonio, but General Motors has a major plant in Arlington devoted to sport-utility vehicle assembly.
Texas is also home to the manufacturing of big semi-trailer trucks by Peterbilt Motors, a division of PACCAR, and the assembly of Caterpillar excavator vehicles. Each operation brings numerous suppliers and doesn't include regional parts distribution centers that set up shop in the state.
Tesla, meanwhile, will probably receive government incentives for where it builds its latest auto plant. Agenda items for commissioners in Travis County, where Austin is located, as well as a local public school district in southeast Austin, show officials have been discussing deals tied to Tesla. For its factory in Nevada, Tesla received $195 million as of the end of 2018, with the state and county in exchange for creating jobs and investing at least $3.5 billion, according to Tesla's annual report.
Musk recently threatened to leave California for greener pastures in Texas or Nevada, two states where he has ongoing operations, after being publicly frustrated by local government stay-home orders given to help mitigate the spread of the coronavirus. The orders shut down the car maker's plant in Fremont, California, which employs more than 10,000 workers. Tesla reopened its California plant in mid-May after days of public complaints.
In Texas, Musk's private space exploration company SpaceX tests its Starship spacecraft and Super Heavy rocket at Boca Chica Beach near Brownsville in South Texas.
New Frontier
Domestic truck manufacturers are taking Tesla and other electric automakers seriously and are planning their own electric trucks. Along with other electric vehicles, Detroit automakers Ford and GMC expect to deliver their own electric trucks, the Ford F-150 Electric and the GMC Hummer EV, by next year to compete with Tesla's Cybertruck. Other makers of electric autos, Rivian and Lordstown Motors Corp., also expect to deliver their own electric pickup trucks in 2021.
However, it's not easy to turn a profit on expensive-to-produce electric vehicles that require many of the same elements, including batteries that can be pricey, as their luxury counterparts. Without the margin allowing for profits, Libby said some vehicle models force automakers to lose money on production.
Fiat Chrysler Automobiles CEO Sergio Marchionne summed up the conundrum in a speech two-and-a-half years ago saying the automaker was losing up to $20,000 for each electric Fiat 500 it sold. To put that into perspective, that's more than the cost of a new base level 2020 Toyota Corolla.
Tesla is one automaker that has found a niche in the luxury electric vehicle market and has a cult following to boot, making it a threat to Detroit automakers. Tesla's vehicles use thousands of purchased parts sourced from hundreds of suppliers throughout the world, according to the company's latest annual filing with the Securities and Exchange Commission.
"We have developed close relationships with vendors of key parts such as battery cells, electronics and complex vehicle assemblies," company executives said in the filing. Some of its suppliers include AGC Automotive, Fisher Dynamics, Modine Manufacturing Co. and Panasonic, which has been Tesla's longtime supplier of automotive-grade, lithium-ion battery cells for its vehicles.
Going Big
Longtime Texas truck owner Landry is one of those Texans willing to take an electric vehicle for a spin. He’s already put down a deposit on one of Tesla’s closest competitors: Rivian's electric SUV that is expected to hit the market next year.
Landry said the Rivian design is more modern looking than a traditional Ford or Chevy pickup truck yet still resembles a truck. Rivian, which is backed by $700 million from Amazon, has set up its operations at a former Mitsubishi factory in Normal, Illinois.
In the next few years, Whitmer, partner at Dallas-based Landry Commercial who has an affinity for a diesel engine in an “old school truck,” plans to dip his toe into the electric vehicle market, but wants to wait and see how electric trucks evolve.
Landry and Whitmer think Tesla would do well to locate its truck plant in Texas, but Whitmer said he hopes Tesla's truck design evolves by the time he starts shopping for an electric truck. Even if he finds the electric truck of his dreams, he doesn't plan on giving up his diesel engine truck.
"I would love to have an electric vehicle, but in addition to my old school truck," said Whitmer, who primarily uses his Ford F-250 diesel engine pickup to navigate the urban and suburban areas of northern Dallas. "I don't really need a diesel engine, but I love having it."
Occasionally, he finds a reason to throw a bale of hay or some horse feed in the back of the truck bed or traverse the fields of his ranch in southeast Texas. But he also uses his truck professionally, giving industrial property tours to prospective tenants or as transportation for a big dove hunt, a Texas-style social gathering often used by executives in the real estate industry to raise funds for charity.
"One thing I love about the truck is I have three little kids under the age of eight and having the family in that vehicle feels safe," Whitmer said in an interview. "You are up high and it's a completely different feeling on the highway versus my wife's smaller SUV. It's a totally different feel and it has so many amenities."
The transition from trucks, a primarily hauling vehicle, into a luxury vehicle is no coincidence; it's done by design as automakers look to win more market share in this lucrative part of the industry. Manufacturers cater to consumer demands, adding anti-sway technology for towing, a plethora of sensors, better fuel economy and 360-degree cameras to make driving a truck easier for everyone, even the first-time truck driver.
"Trucks now appeal to a wider audience with them being easier to use and less intimidating," said Ivan Drury, senior manager of insights at Edmunds, which tracks vehicle sales in the United States. "Manufacturers also charge a nice premium for those things they sell to consumers. You don't have to know geometry and angles," he said. "It's almost like driving a video game rather than an old school truck, which opens the doors to more consumers."
Once bitten by the truck bug, Drury said it's hard for drivers to walk away, or downsize back to a passenger car. In tracking vehicle purchases, he said there's a tendency for consumers to upgrade from a sedan into a sports utility vehicle before tackling the truck.
"There's a progression and there's little rationale for them to go backward," he added.