Tesla Files Lawsuit in Bid to Reopen Fremont Factory - The Wall Street Journal

Local government officials said Tesla can’t resume production because of efforts to contain the coronavirus... — Local government officials said Tesla can’t resume production because of efforts to contain the coronavirus pandemic.
Photo: nathan frandino/Reuters

Updated May 10, 2020 7:37 am ET

Tesla Inc. TSLA 5.05% has asked a federal judge to allow the electric-car maker to reopen its lone U.S. assembly factory, calling a local government’s insistence that it remain closed to fight the spread of Covid-19 a power grab that defies the U.S. Constitution.

The lawsuit, filed Saturday, followed a new string of messages on Twitter by a frustrated Chief Executive Officer Elon Musk, saying he is ready to abandon California as the company’s home after Alameda County officials said Tesla can’t resume production even as the state begins to start reopening.

The Tesla CEO, through Twitter, on Saturday morning said: “Tesla is filing a lawsuit against Alameda County immediately. The unelected & ignorant “Interim Health Officer” of Alameda is acting contrary to the Governor, the President, our Constitutional freedoms & just plain common sense!”

By the evening the company released details of how it planned to keep its workers safe, saying it had begun the “process of resuming operations.” It didn’t specify when production would restart.

The company filed its suit in the U.S. District Court for the Northern District of California, seeking an injunction against the county’s order and arguing, in part, that the local government had overstepped its authority by overruling the California governor’s approval for businesses to reopen.

“Alameda County’s power-grab not only defies the Governor’s Order, but offends the federal and California constitutions,” Tesla said in the lawsuit, filed by outside lawyer Alex Spiro.

California Gov. Gavin Newsom on Thursday began detailing how the state would begin phasing in the reopening of some businesses starting the following day, including manufacturing. He also said he supports local communities enforcing stronger shelter-in-place rules, such as those in the San Francisco area, including Fremont and Alameda County, where Tesla’s factory is located.

Alameda County has reported more than 2,000 cases of people infected with the Covid-19 virus through Friday, including 71 deaths from the disease.

On Saturday, the county said it has been communicating and working closely with Tesla’s “team on the ground in Fremont,” noting that it was a collaborative and “good-faith effort to develop and implement a safety plan that allows for reopening while protecting the health and well-being of thousands of employees who travel to and from work at Tesla’s factory.”

The county added, “The team at Tesla has been responsive to our guidance and recommendations, and we look forward to coming to an agreement on an appropriate safety plan very soon.”

It didn’t respond to a request for comment about the lawsuit.

Tesla initially fought to stay open in March when the local order was first announced but eventually relented under pressure, stopping production on March 23. It had hoped to resume manufacturing on May 4, a day after the shelter-in-place had been scheduled to be lifted but that order was extended last week through the end of May, sparking Mr. Musk to call such restrictions a violation of people’s rights and equated them to fascism.

After Gov. Newsom’s announcement Thursday about phasing in businesses, Mr. Musk cheered the news on Twitter. The CEO sent a memo to his employees saying the factory, which employs more than 10,000 workers and assembles the Model 3 compact car, would resume work on Friday. But hours later, the public health department of Alameda County said in a statement that Tesla had been informed that it couldn’t reopen yet.

In the lawsuit, Tesla said that its facilities in Lathrop, which is part of nearby San Joaquin County, continue to operate, saying both counties have experienced a similar infection and death rate. “This disparate treatment is arbitrary and without a rational basis,” the lawsuit said.

Mr. Musk, a frequent user of Twitter, on Saturday said on the social-media site: “Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be dependen on how Tesla is treated in the future. Tesla is the last carmaker left in CA.”

On Saturday, after Mr. Musk’s Twitter messages, Fremont Mayor Lily Mei issued a statement saying it was time for the “county to engage with our local businesses to come up with acceptable guidelines for reopening our local economy.” The city’s police department has been responsible for enforcing the order locally.

“As the local shelter-in-place order continues without provisions for major manufacturing activity, such as Tesla, to resume, I am growing concerned about the potential implications for our regional economy,” the mayor said. “We know many essential businesses have proven they can successfully operate using strict safety and social-distancing practices. I strongly believe these same practices could be possible for other manufacturing businesses, especially those that are so critical to our employment base.”

Mr. Musk in March said Tesla was seeking a site for a new U.S. automobile assembly factory in the middle of America, stoking speculation that Texas might be in the mix. “Incentives play a role, but so do logistics costs, access to a large workforce with a wide range of talents, and quality of life,” he told The Wall Street Journal at the time.

Tesla began the year planning to boost deliveries more than 36%, though last month didn’t reiterate the guidance when it announced its first-quarter results, and said it was too early to say what the impact of the Covid-19 heath crisis would be on its business.

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In an interview with Joe Rogan’s podcast released Thursday, Mr. Musk called the shelter-in-place orders a violation of the U.S. constitutional right to assemble. “I don’t think these things stand up in court,” Mr. Musk said. “We should be concerned about anything that is a massive infringement on our civil liberties.”

The San Francisco area has won praise for its initial aggressive action to contain the coronavirus, which in March looked increasingly threatening to the community. Since then, a national debate has begun about when communities can open up again. Some U.S. states have eased restrictions.

Michigan Gov. Gretchen Whitmer on Thursday said auto makers and parts suppliers in that state could resume operations on Monday. General Motors Co., GM 6.64% Ford Motor Co. F 7.60% and Fiat Chrysler Automobiles FCAU 3.66% NV plan to resume production on May 18 at plants across North America.

An extended shutdown in California poses a risk to Tesla’s effort to ramp up production of its latest car, the Model Y compact sport-utility vehicle, which Mr. Musk has said could overtake the Model 3 car as its bestseller. The success of the Model 3 has helped Tesla see rapid growth in the past two years. Tesla surprised Wall Street when it reported a small first-quarter profit, the first time in the company’s 16-year history that it has been able to post three consecutive quarters of profitability.

While the company has said it has enough liquidity to weather the economic uncertainty, having most of its operations shut down could quickly consume its cash. On Friday, the company announced it had secured a more than $500 million working-capital loan in China to help expand its only other assembly plant located in Shanghai, which opened late last year.

The threat to leave California underscores the pressure Mr. Musk faces.
Photo: hannibal hanschke/Reuters

That factory has given Tesla experience dealing with the coronavirus, Mr. Musk said recently. He noted during the podcast that none of the company’s 7,000 employees in China have died of the virus.

“Tesla knows far more about what needs to be done to be safe through our Tesla China factory experience than an [unelected] interim junior official in Alameda County,” Mr. Musk said Saturday.

Tesla said its plan to restart operations has been crafted over months and would ensure worker safety at the factory, including measures to assure social distancing and extra employee training. “It was modeled after the comprehensive return to work plan we established at our Shanghai Gigafactory, which has seen smooth and healthy operations for the last three months,” the company said on its website.

The threat to leave California underscores the pressure Mr. Musk is under and would mark a sharp shift for the company that built its image, brand and workforce in the Golden State.

A community of electric-car enthusiasts throughout California helped seed interest in the then-tiny startup that revealed plans in 2006 to sell a two-seat sports car. The state’s tough emissions regulations also helped Tesla. An important part of the struggling company’s revenue in its early years came from selling emissions tax credits. Tesla received them for its electric cars and could sell them to competitors who lacked the volume of zero-emission vehicles to avoid state penalties. Tesla’s first-quarter profit, in fact, was largely helped by the sale of such credits, a practice that has been adopted elsewhere.

The acquisition in 2010 of the Fremont factory, a short drive from Tesla’s Palo Alto headquarters, was a pivotal moment in the company’s history ahead of going public

By making his public threat to leave California, Mr. Musk is following a similar pressure campaign against government officials that he has employed when fighting laws or regulations he has opposed.

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In Texas, which protects franchise dealerships that Tesla doesn’t use, he spent years trying to fight the law, though with no luck even as he succeeded elsewhere. In such battles with governments, Mr. Musk has tried to rally support among Tesla fans. He seemed to be doing the same on Saturday, telling a Bay Area Tesla ownership group on Twitter to “please voice your disagreement as strongly as possible with @alamedacounty.”

Despite Tesla’s battles in Texas, Mr. Musk has shown an interest in the state. Last week, during a call with analysts, he suggested that the company might announce plans for its future battery efforts at an event in Texas later this month. If Tesla moves its headquarters to the state, the electric-car maker would be joining Toyota, which decamped from its North America headquarters in California beginning in 2014.

Write to Tim Higgins at Tim.Higgins@WSJ.com

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