SpaceExternalities: Exploring the implications of SpaceX's move from California to Texas

On July 16, Elon Musk announced that SpaceX would be moving its headquarters 1,662 miles east from Hawthorne, California to Starbase, Texas. It is too soon to know how many employees might be required or encouraged to pack up their laptops for the ~24-hour drive from Venice Beach to the Gulf of Mexico. But it's not a stretch to predict that the change might prompt some SpaceX personnel to leave the company rather than leave California. On the other hand, the move could attract talent that otherwise would not have been interested in living and working in the greater Los Angeles area. The corporate and personal decisions playing out over the next months and years will have ripple effects in both states and on the NewSpace economy more broadly.

Before Musk's announcement, SpaceX had already re-domesticated from a Delaware corporation to a Texas corporation earlier this year. Frustrated by what he perceived to be an overly meddlesome court system and legal landscape, including a judge's decision to invalidate his $56 billion Tesla pay package, Musk encouraged others "if your company is still incorporated in Delaware, I recommend moving to another state as soon as possible." Now, by deciding to physically move headquarters to Texas, ostensibly due to his concern over family values, Musk is signaling his apparent belief that Texas' stance with regard to labor, environmental and other laws are more to the liking of a 13,000-person space company with a reported $210 billion valuation. While SpaceX personnel will of course continue to work from multiple locations around the world, if Musk hopes to successfully transplant anything more than a nominal number of key contributors and equipment to the Rio Grande Valley, the region will need to prove it is up to the challenge. Texas's ability to provide (or at least attract, import, and retain from elsewhere) the right sorts of resumes and resources needed to keep SpaceX thriving and reach Mars and beyond will be the crucial factor. Texas may be the Lone Star state, but it will take more than any one ambitious individual, office building or launch pad to accomplish SpaceX's loftier goals.

Meanwhile, back in California the state's employee-favorable labor laws and environmental protection ethos could encourage SpaceX employees on the fence about the move to stick around and consider joining rival firms or even striking out on their own. For all the criticism that California has received, the West Coast remains a magnet for founders and financiers of all types. As recently as January of this year, California Senate Bill 699 (SB 699) and Assembly Bill 1076 (AB 1076) went into effect, codifying existing case law voiding non-compete agreements in the employment context (subject to certain exceptions, including for non-competes entered into in connection with the sale of a business). The SpaceX alumni have already created hundreds of new businesses, and the move to Texas, if it is in fact more substantial than a symbolic shifting of a few suits, could certainly spur even more SpaceX employees to start their own ventures in the Golden State.

One way in which the space economy differs from some other tech sectors is that, at its core, it remains a manufacturing and operations industry. There are of course an increasing number of space-related software and services firms that require little more than a server and some laptops, but the leaders remain those who create the "nuts and bolts" of spacefaring - the launch vehicles, the spacecraft, and all their various components. According to its website, "SpaceX designs and builds its reusable rockets and spacecraft at its headquarters in Hawthorne, California. As a company, SpaceX is vertically integrated, building the vast majority of the vehicle on the Hawthorne campus. SpaceX headquarters remains one of the few facilities in the world where you can see an entire launch vehicle or spacecraft come together under one roof." For SpaceX and similarly situated, asset-heavy space companies, relocation is a more daunting effort than simply finding a sub-tenant for an office lease and transferring WIFI service to a new address. On the other hand, the physical component means that such manufacturing and launch companies potentially have more to consider and to gain when comparing legislative landscapes. With broader regulatory frameworks in mind, government has more levers to pull and different types of incentives to offer such would-be taxpayers. For a company like SpaceX, considerations go beyond human recourse laws and relative degrees of laissez-faire corporate governance oversight.

It is of course much too soon to determine whether SpaceX's proposed move will serve as a symbolic turning point for a pro-heartland influx / anti-coastal migration in the broader space economy, or rather serve as a cautionary tale of what can happen to those who venture too far from the traditional motherships of corporate law (Delaware) and the start-up ecosystem (California). But with the NewSpace economic and technological resurgence comes the opportunity for a fresh take on regulatory priorities as well, as a new generation of space founders to reassess where and how they want to do business. Most likely, different space companies of different sizes and different needs will be drawn to different state benefits. The very same legislative elements that may incentivize established companies to move away from more employee-favorable jurisdictions may encourage those just starting out to remain and build something new. The extent to which Musk is truly breaking up with California remains unclear, but if the transition serves to strengthen SpaceX while also motivating new successful start-ups, the move could be a net positive for multiple communities and the NewSpace movement as a whole.

The views expressed in this article as those of the author alone and not of his employer or its clients.