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All’s fair in the pursuit of Elon Musk’s innovative companies, but at what cost? 

By Bart Taylor May 19, 2020, 01:31 pm MDT

Before California, Washington, Oregon, Colorado, and Nevada announced the Western States Pact last month to coordinate a "shared approach for reopening our economies" in response to COVID-19, states in America's West had already formed a loose confederation. The informal union lacked a crisis of COVID's magnitude to codify ties, and an official name, but the regional amity on display has been long in the making.

With one exception: Economic developers still work within state lines, and the self-interest that drives local economies encourages the active recruitment and poaching of companies from neighboring states.

No doubt local officials in Colorado were cheering on Governor Jared Polis last week when he jumped into the dustup in California between Tesla and Alameda County to curry favor with Elon Musk. That's what governors do. They're chief sales officers, they lead by example, and the example continues to be that all is fair in love and the pursuit of your neighbor's major employers. 

States in the West also smell blood in the water in California. Companies in the Golden State can be vocal about their frustration with the business environment. A litany of complaints is long and well documented, and the path from Denver, Salt Lake City, Phoenix, and Portland to Los Angeles and Oakland well-traveled by officials looking to lure away a trophy manufacturer like Tesla.

But in this case, it seems a poor choice, one that also works to undermine regional prosperity.

As we document weekly, OEMs and brands require capable supply chains. In Colorado, Polis' enthusiasm runs headlong into the supply chain reality that today, the state is unequipped to support an automotive brand like Tesla.

"Colorado's supply chain, in its current state, could not handle the Tesla requirement," offers Larry Caschette, president of Westminster, Colorado-based Metalcraft Industries. "I was approached by Tesla when they were building the lines for the Model X, and they wanted us to build stamping tooling for their Fremont facility. They needed 150 auto body tools in less than six months. That would take Colorado metal stamping companies as a group years to accomplish."

We report on California's robust transportation supply chain regularly, including Tesla suppliers like San Leandro-based Scandic. Say what you will about California's warts, but the state is dotted with advanced aerospace and automotive suppliers.

That's not to say Colorado, and others, are far behind. But it's a two- to five-year proposition, says Metalcraft's Caschette, involving money and focus. "We would need access to capital and incentives to be successful, in my opinion, and lots of outside management and investment."

"But I like where it's going," he adds. "We've needed a couple big industrials in the area forever -- more Ball, Lockheed, Arrow, and Vestas-type companies. Our supply chain changed quickly when Vestas came to town. It seems the big boys -- Magna, AutoDie, ITW, any of the big stamping supply chain vendors -- go where the work is and quite quickly." 

That's the formula Colorado's Polis seems intent on following: Recruit nameplate OEMs, and a supply chain will follow. It's also a formula that's left the state's manufacturing supply chain inadequate to support -- and recruit -- more companies.

There's an alternative approach, linked to the promising economic drivers working to make a Western States Pact viable in the first place.

Even before COVID, OEMs and brands were bringing production back onshore where possible and looking to expand domestic production. COVID will accelerate the embrace of domestic supply chain development, and it happens that America's Western states are flashing the industrial acumen to lead the U.S. into manufacturing's new era. Forbes writer Anna-Katrina Shedletsky suggested that "COVID-19 requires the modernization of manufacturing." Regional outposts throughout the West will lead the way.

More, consider manufacturing's growth industries. From defense-related aerospace to innovations in transportation to food and beverage, bioscience, pharma, and chemicals, the West is poised to play a leadership role. America's epicenter of mission-driven companies also tilts West. COVID is accelerating the move by dozens of companies to reconcile unsustainable, legacy offshore manufacturing strategies with brand promises made to customers.

Can Utah, or Colorado, or Arizona alone lead America into a brave new world of manufacturing? Can California?

The easy answer is no. States like Colorado and California need each other. 

Governor Polis would best help Tesla by working with California Governor Gavin Newsom and others to assess gaps in the West's manufacturing supply chain, and respond with focus and energy to develop a region-wide ecosystem that helps OEMs and brands bring production onshore from China, or enables local companies to tap resources in neighboring states in lieu of Asia or Europe. 

Expand the Western States Pact to include economic programs that tap into the natural synergies of the region. And be leaders in developing a new American federalism, shaped by regional cooperation.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

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