Elon Musk seemed relieved that Tesla’s sprawling factory near Berlin, built on 165 hectares of former forest land, has finally started producing the Model Y electric hatchback for Europe. But the timing is tricky, as Russia’s invasion of Ukraine has pushed up the cost of materials for Tesla’s batteries, a global shortage of computer chips continues to intensify and local water shortages threaten Musk’s ambitions for the plant.
“Excited to hand over the first production car built by Giga Berlin-Brandenburg tomorrow!” Billionaire Entrepreneur tweet on monday. “Localizing production within a continent has a huge impact on capital efficiency.”
The Tesla CEO had planned to start assembly operations at the $5 billion plant in Grunheide, Germany, in July 2021, and then last fall after missing a deadline. Tesla aims to eventually produce 500,000 electric cars and battery packs a year at the factory, but for now will be at the mercy of the supply chain and other issues beyond Musk’s control. He warned in January that “supply chains will continue to be the fundamental limiting factor for all factory output” and that “chip shortages, while better than last year, are still a problem.” A few weeks later, wars and water use for factory operations look at It’s a headache to get up.
The water authority in Germany’s Brandenburg region finally gave Tesla the green light, but expressed concerns about the future development of the plant because water conditions in the region “remain tense.” Wasserverband Strausberg-Erkner said in a statement: “This means: there will be no further development of the association area without additional funding approval from the state government.”
Despite the headwinds, the German factory should be a key asset for Tesla in Europe and help meet Musk’s goal of growing sales by 50% annually. It also eased the Austin-based company’s growing reliance on China, which last year became Tesla’s biggest source of production and profit. The world’s largest electric vehicle market offers Tesla’s Shanghai factory lower labor and parts costs, but China’s authoritarian government and growing tensions with the U.S. are also potential sources of risk for a company that lacks a diversified global production footprint .
Dan Ives, an equity analyst at Wedbush Research, said in a note Monday that “red tape and headaches” have delayed openings, but “we can’t stress enough how much Giga Berlin production has contributed to the overall success of Tesla’s European and global footprint. importance”. “The current Rubik’s cube logistics of producing cars in China at Giga Shanghai and delivering to customers throughout Europe is not a sustainable trend. The Berlin factory has established a major beachhead for Tesla in Europe, with the potential for the next 12 to 18 Expand the plant to produce approximately 500,000 Model Y front and center vehicles annually within the month.”
“The current Mosaic logistics where cars are produced in China at Giga Shanghai and delivered to customers throughout Europe is not a sustainable trend.”
Demand for lithium, cobalt, nickel and other raw materials needed for electric vehicle batteries has been rising over the past year, and nickel prices have seen an unusually large rise this month amid concerns over Russian metal supplies. Tesla, the largest producer of electric cars, has been directly affected, which may be why the company just raised the price of its cars in the U.S. and China. Given that the company’s current entry-level Model Y sells for about $62,000 before tax in the U.S. and Germany, its pricing keeps it in the lucrative but lower-volume premium segment. Musk has said Tesla intends to start rolling out cars with cheaper lithium iron phosphate batteries, which could improve affordability for the brand.
S&P Global Mobile said in an updated industry forecast last week that the economic impact of the Ukraine war extends well beyond Germany and Tesla and could impact global auto production. Total global auto production is likely to be 81.6 million this year, below Standard & Poor’s previous forecast of 84.2 million, with most of the decline in Europe. “Europe alone will cut 1.7 million units by 2022, roughly including demand losses in Russia and Ukraine of nearly 1 million units,” the industry researcher said, citing the impact of semiconductor supply and raw material costs.
While these conditions may ease over time, water is a long-term concern for Giga Berlin, said Deutsche Bank equity analyst Emmanuel Rosner. “Electric vehicle manufacturers need to provide evidence of proper water and air pollution control to really increase production,” he said in a research note. Tesla has access to enough water to expand annual production by 500,000 vehicles, but “will require additional mining licenses to further expand capacity in the future.”
Still, opening a factory in highly regulated, bureaucratic Germany is a major achievement for Musk, said Matthias Schmidt, whose consulting firm tracks the European auto market. “Thanks to Tesla, even though the project does run a year behind schedule, it’s still a huge leap forward in terms of the speed of construction in Germany, and fax machines can still be seen lining some office buildings, and there’s no dust!”
Tesla shares rose 1.7 percent in Nasdaq trading on Monday to close at $921.16.