Elon Musk takes on car giants by setting up shop in Berlin


“Elon Musk has an ability to make a splash,” said John Boyd, principal of an eponymous manufacturing site-selection firm.. “Not only does Germany bring top-level manufacturing skill sets and positive supply chain dynamics to the table, but there is a cachet value to Tesla establishing a brick-and-mortar presence in Germany – a nation synonymous with precision car manufacturing.”

Tesla shares traded up 0.7 per cent before the market opened in New York. They closed Wednesday at $US349.93, their highest since December, after Musk announced his plans.

Musk has until now relied on a single auto assembly plant in Fremont, California, to build a $US63 billion ($92 billion) company. That facility is supported by the first of the company’s so-called gigafactories near Reno, Nevada, that makes batteries. Tesla is on the verge of starting sales of Model 3s produced at its latest production facility, near Shanghai.

While adding a European factory raises the stakes for established automakers already facing a serious threat from the electric upstart, it’s likely going to take time for the plant to get up and running. Musk estimated earlier this year that Tesla’s European gigafactory probably won’t be operational until 2021.

“The Berlin location serves two unique goals,” said Gene Munster, a managing partner at venture capital firm Loup Ventures. “It’s strategic to lure German automotive talent to Tesla, and it’s a statement that Elon wants to one-up auto companies from that region.”

The gigafactory will be located near Gruenheide, just outside Berlin in eastern Germany, according to Tagesspiegel newspaper – near the coming Berlin Brandenburg Airport.

For Tesla’s design centre, Berlin has offered locations including the site of the existing Tegel airport, which will be phased out after the new hub is opened, according to a letter from the city’s economy minister. Around 10,000 jobs will be created, Bild reported.

Tesla’s modest presence in Berlin now includes a store and service centre near the Schoenefeld airport, and showrooms near Potsdamer Platz and on the West Berlin shopping boulevard Kurfuerstendamm.

While the future of Germany’s electric-car market looks crowded, the politics of shifting away from the internal combustion engine also are going to be messy. Daimler, the maker of Mercedes-Benz cars, is running into labour-union resistance over where future electric cars will be produced ahead of a critical meeting with investors on Thursday in London. Audi, the biggest profit contributor to Volkswagen AG, faces similar fights over safeguarding employment at its main German factories that specialize in sedans and station wagons.

Germany is home to some of the most prestigious automotive brands in the world. Credit:Bloomberg

Chancellor Angela Merkel’s government and local automakers have agreed to boost incentives for EVs, intensifying Germany’s effort to move away from the combustion engine to reduce exhaust emissions. Still, building vehicles in a country that has some of the highest labor and energy costs worldwide is bound to be a challenge. European customers also expect a network of dealers and repair shops to reliably handle maintenance and repair work, which Tesla has struggled with lately.

“There was very intense competition in recent months among different European nations,” Economy Minister Peter Altmaier told reporters in Berlin, adding that subsidies haven’t been discussed. “It’s an important and positive development that Germany was chosen.”

Adding production in Germany and China will probably help Musk boost Tesla’s sales in those regions, according to Kevin Tynan, a Bloomberg Intelligence auto analyst. “The sustainability of the demand will be more the question,” he said. “And if local competition becomes real competition, it will be more difficult.”

Merkel’s government announced last week that cash incentives will jump by 50 per cent to as much as 6000 euros ($9780) per electric vehicle, with the auto industry covering half the cost. The changes will take effect this month and run through 2025.

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For Musk, choosing greater Berlin for a factory was “surprising but not fallacious,” said Ferdinand Dudenhoeffer director of centre for Automotive Research at the University of Duisburg-Essen. Battery-cell manufacturing requires space, infrastructure and subsidies, and the city is a good fit for a premium brand like Tesla’s, he said.

Shortly after dropping the news, Musk sent out a pair of tweets to make sure it wouldn’t be missed by his 29.3 million Twitter followers. He said the factory will make batteries, powertrains and vehicles, beginning with the Model Y crossover unveiled earlier this year.

Bloomberg

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