At the Golden Steering Wheel Awards earlier this month in Frankfurt—a few hours’ drive away from the birthplace of the internal combustion engine—Elon Musk announced that Tesla plans to open a new factory in Berlin.
The event, attended by CEOs of major automotive companies including Volkswagen, BMW, and Audi, the billionaire chief executive said that Tesla will also establish an engineering and design center there, too.
"Everyone knows German engineering is outstanding for sure. You know that is part of the reason why we are locating Gigafactory Europe in Germany," said Elon Musk at the event.
The Gigafactory 4 announcement comes as Tesla is currently building another factory in China where operations are due to start very soon.
Tesla assembly factory in Fremont, California. Image Credit: Tesla.
By placing production facilities in strategic locations such as China and Germany, Tesla is rounding out its global manufacturing network by tapping into local talent pools and proving itself as being more than a manufacturer of niche, novelty electric vehicles.
Raising the Stakes for VW, Audi, BMW, et al
For quite some time now it has been speculated that Tesla had its eyes on Germany for the location of a new production facility. Now that the announcement has been made, it is known that Tesla’s new factory, Gigafactory 4, will be located in the eastern state of Brandenburg, close to Berlin.
By bringing Tesla production to Berlin, the company will benefit heavily from some of the world’s best automotive talent. It is also apparent that Tesla hopes to rival other major automotive companies from the region such as Volkswagen and Audi. While accepting a trophy for the Tesla Model 3, beating BMW and Audi sedans for Midsize Car of the Year, Musk said, “Some of the best cars in the world are obviously made in Germany” while also acknowledging that Germany is “not that far behind” in electric vehicles.
With many traditional automotive companies already feeling the heat from the upstart of electric vehicles, Tesla’s Germany-based factory will raise the stakes just that little bit higher when it is finally operational.
Gambling on Opportunity Cost
Germany has some of the world’s highest living costs. This has a direct impact on the cost of both skilled and unskilled labor which are higher than in many other European countries. This may pose something of a challenge for Tesla and while the company isn’t going to bankrupt itself by gambling on its German expansion, there will need to be an increase in regional sales for the move to pay off in the long run and be sustainable.
However, the German government has agreed to provide incentives to EV manufacturers to boost Germany’s efforts in moving away from the traditional internal combustion engine. What these incentives are is yet to be seen.
Until now, Tesla has relied on a single auto assembly plant in California. This is supported by the first of Tesla’s so-called ‘gigafactories’ near Nevada that produces Tesla’s batteries. This has made acquiring Tesla’s EVs a little bit more expensive and difficult for customers outside of the U.S., and those that have managed to get their hands on Tesla vehicles have found there to be scarce networks of authorized dealers and maintenance providers.
With Tesla now making considerable efforts to take its EV production global and compete against major auto manufacturers, this should no longer be the case.
The initial production of Gigafactory 4 is expected to begin in 2021.