Elon Musk May Regret Putting First Tesla European Plant in Germany

Red tape and supply-chain issues keep holding back the EV maker’s factory outside Berlin.

Elon Musk might have to regret putting tesla’s first European Plant in Germany. Know why. (REUTERS)

Tesla recently outlined what will determine where the carmaker puts its next plant. Looking at the list, it's easy to imagine Elon Musk wishes he had a do-over and didn't put his first European factory in Germany.

The criteria relayed by Baird's Ben Kallo includes “as little red tape as possible,” the analyst wrote in a Sept. 8 report. Tesla has experienced a good deal of this in Gruenheide, outside Berlin. It complained in April of last year about the “ irritating” process of getting final approval for the project. Musk's dancing during the plant opening in March was a rare celebratory moment.

The facility — first announced in late 2019 — was delayed for months by legal challenges from environmental groups concerned the site would use too much water and threaten local wildlife. Weeks after production finally started, Musk referred to Tesla's factories in Germany and Texas as “gigantic money furnaces” that were losing billions of dollars.

Now, more roadblocks are popping up. Last week, broadcaster RBB reported that authorities in Gruenheide had indefinitely postponed a vote on Tesla's plan to expand the factory by around 100 hectares (247 acres) to add a freight yard and warehouse for stockpiling parts. At least part of the expansion would be into an environmentally protected area, and any plan to chop down more trees will surely run into stiff opposition.

“There is a need for clarification with authorities regarding the development possibilities for the entire municipality of Gruenheide,” Arne Christiani, the town's mayor, said by phone. “It's unclear when this will be resolved.”

There have been signs Germany's bureaucracy could be costly with respect to Tesla's investment in Gruenheide. Late last year, the company decided to forgo 1.14 billion euros ($1.12 billion) of state aid because it opted to try producing a new type of battery cell in Texas first. The Wall Street Journal reported this month that the company was pausing plans to make battery cells in Germany and had discussed shipping cell-making equipment to the US.

Joerg Steinbach, the economy minister for the state of Brandenburg, where Tesla's factory is located, tweeted Wednesday that he's been assured all is well.

“The commitment in Gruenheide remains unchanged, especially regarding expansion plans for automobile production,” Steinbach tweeted after a conversation with Tesla representatives in Washington. “The battery factory will be completed. Internal process modifications and prioritizations are pending. But the factory is coming.”

Amid all these reports, Tesla recently hosted an open house at a Gruenheide convention center, where employees mingled with a few dozen visitors munching on pretzel sandwiches and donuts. Tesla staffers in black t-shirts presented the carmaker's plans with respect to logistics, hiring and expansion, and also talked about more sensitive issues such as water consumption.

One theme dominated the conversations: Just-in-time production, the workers said, has become untenable due to supply-chain snags, Covid-caused factory shutdowns and skyrocketing logistics costs. This is the reason Tesla is trying to expand the factory with the warehouse to store more parts and a multi-track freight yard to shift deliveries to trains from trucks.

One employee said that for battery components from China, Tesla has had to deal with container bottlenecks at Hamburg harbor. Choosing more expensive air freight isn't a great option either, as cargo planes are being diverted around the closed Russian-Ukrainian airspace, further driving up costs.

Tesla has made some unconventional moves to navigate out of production quagmires before, perhaps most notably in 2018, when it was struggling to mass-manufacture the Model 3. The company ended up constructing an assembly line under a massive outdoor tent to boost output.

Germany's infamous red tape and its strong labor unions make that kind of unconventional problem-solving much harder. Last month, Musk said during Tesla's annual meeting that where were still a “host of problems” to work through both in Austin and Gruenheide. While both may be having a hard time spooling up, the company has clearly shown a greater willingness to take on more in Texas.