Elon Musk Opens Tesla’s First European Factory

BERLIN—Elon Musk formally started customer deliveries at Tesla Inc.’s

TSLA 7.91%

first European factory outside Berlin, a milestone in the international expansion of the electric car manufacturer.

When he handed over the first Tesla Model Y vehicles built at the factory to their new owners on Tuesday, the CEO said the factory would create a base for both electric vehicles and the batteries that would store energy from wind and sun. Mr Musk called that a big step in the fight against global warming.

“Every vehicle we make will be another step towards a sustainable energy future,” he said. “You have to have hope in the future. This problem will be solved.”

German Chancellor Olaf Scholz welcomed the factory as an economic boost to East Germany, which more than three decades after reunification is still catching up with the wealthier west of the country.

Tesla vehicles were lined up at the company’s new factory in Grünheide, Germany, which aims to produce cars for a region that is partially dependent on expensive imports.


Photo:

Liesa Johannssen-Koppitz/Bloomberg News

Tesla shares rose 7.9% to $993.98 on Tuesday.

Two years in the making, the plant will allow Tesla to build cars for European markets, which currently rely on expensive imports from the US and China, and tailor vehicles to local tastes, analysts said. The plant will eventually employ up to 12,000 people and produce up to 500,000 vehicles per year, starting with the Model Y, a sporty crossover.

On the eve of the factory’s opening, Mr. musk tweeted: “Makes a huge difference to the capital efficiency of locating production within a continent.”

In 2019, the state of Brandenburg competed with other locations in Germany and Europe to host the Tesla factory. The proposed site, in Grünheide, a town surrounded by forests and lakes, won the bid thanks to its proximity to the German capital and the regional government’s promise to get quick approvals for the plant. As part of the competition, German officials even organized flights for Tesla executives in an Antonov plane called “Anushka” to survey the land where the factory would be built.

At the time, Mr. Musk was in Berlin to receive the “Golden Steering Wheel” award from a German auto industry group. Unveiling the news, he said: “Everyone knows that German engineering is definitely excellent. You know that’s one of the reasons why we’ve established Gigafactory Europe in Germany.”

The wait to start production in Europe is over, but Tesla’s drive to the region could be delayed by Russia’s war against Ukraine, which has created new shortages for automakers in the region. While Tesla has managed the chip crisis better than most of its rivals, it uses many of the same suppliers as German manufacturers.

“Tesla cannot fundamentally break free from the supply bottlenecks,” said Stefan Bratzel, director of the Center of Automotive Management, a research institute in Germany.

Tesla CEO Elon Musk turned his first European Gigafactory near Berlin into a funfair where visitors could tour the facility. The project faced delays and local resistance, but Musk said the company expects to begin production in November. Photo: Patrick Pleul/Associated Press (Video from 10/11/21))

Ferdinand Dudenhöffer, director of the CAR Center Automotive Research in Duisburg, Germany, said the new factory in Europe will likely help Tesla become even more competitive against German rivals such as BMW as it continues to cut costs.

“We assume that Grünheide will produce at least 100,000 new Tesla models this year and the curve will rise sharply in 2023,” he said.

Tesla has faced opposition to the Grünheide plant from environmental groups worried about the amount of water the plant would need, and activists protested on the sidelines of Tuesday’s opening. Still, Germany has generally welcomed Tesla as a sign that the country, with high labor costs and strong unions, has remained an attractive place to invest.

Robert Habeck, Germany’s economy minister and a leader of the environmentalist Greens, praised Tesla’s “bold corporate culture” for taking the risk of starting construction on the plant before official approval was completed. If final approval had not been granted, the company would have had to demolish the buildings and return the land to its original condition.

“The start of production today in Grünheide is a special day for the region and a special day for the transformation of mobility in Germany,” he said. “The shift to electric mobility is another step away from oil imports.”

Tesla has built a devoted following in Europe, but faces a more competitive landscape today than when it started the factory. Volkswagen AG

which struggled with the software in its first all-electric mass-market model, has since overcome its growing pains to become the world’s second-largest producer of EVs after Tesla, according to EV-Volumes.com, a research group that tracks EV sales. .

A worker prepared an area outside Tesla’s new German factory for vehicles earlier this week.


Photo:

HANNIBAL HANSCHKE/REUTERS

In 2021, all-electric and plug-in hybrid electric vehicles accounted for 18% of new car sales in Europe, up from 10.5% the year before. Overall, new car sales in the region are at their lowest level since 1985, analysts said.

S&P Global Mobility lowered its outlook for global auto markets after the war between Russia and Ukraine disrupted supply chains. S&P analysts have lowered their outlook for global auto production this year by 2.6 million vehicles to 81.6 million vehicles, with more than half of the deficit coming from Europe.

“The downside risk is huge,” said Mark Fulthorpe, executive director for global manufacturing forecasting at S&P Global Mobility. “Our worst-case contingency shows potential reductions of up to 4 million units [globally] for this and next year.”

write to William Boston at william.boston@wsj.com

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