Tesla CEO Elon Musk recently announced in Germany that he will build a super plant near Berlin to produce batteries, powertrains and assembly of electric vehicles, Tesla’s first superplant in Europe and the fourth in the world after Nevada, New York and Shanghai, China. Can Musk replicate the success of building a plant in Shanghai in 10 months? Can Tesla become a “fish” in Europe’s new energy vehicle market, shaking VW’s dominance?
The government may subsidize Tesla’s plant by 1 billion euros.
Tesla has been looking for the right production spot in Europe for its high-end electric cars, and the UK has been kicked out of the country early because of the uncertain future of Brexit. Berlin is not Musk’s particular choice, with the Tesla team preferring to border France, Belgium and the Netherlands in western Germany. For months, Tesla has been negotiating with German states, from Lower Saxony, Volkswagen’s home state, to Berlin, offering concessions and using personal relationships to try to persuade Tesla to stay. Eventually, Tesla reduced the number of candidate sites in Europe to 10 and sent multiple negotiating teams for intensive consultations.
Finally, on November 12th, at the Golden Wheel Awards ceremony in Berlin, Musk made a surprise announcement that the Tesla Superfactory was officially located in Brandenburg, a small location in the southeastern part of Berlin called Grunheide, not far from the famous new airport of the Rotten Tail project. “We’re definitely building faster than Berlin’s new airport, ” Musk quipped at the ceremony. “
Musk is not interested in the preferential game of the German states, he needs speed, berlin’s new airport for 13 years continues to rot, which is the last thing he can bear. Just hours before Musk announced the superplant’s arrival, Tesla formally submitted a government investment subsidy application to the Brandenburg Investment Bank, which must also be approved by the European Commission. Tesla did not disclose how much the brandenburg state had paid, but the industry initially estimated that Brandenburg had given Tesla more than 1 billion euros in investment subsidies, based on subsidies previously received by Siemens after setting up a technology innovation industrial park in Berlin. At the same time, Tesla’s superplant will create between 6,000 and 7,000 jobs. In addition, Tesla will build an automotive design and engineering center in Berlin.
Great efforts to lay out the electric vehicle industry
As a established base for the global automotive industry, Germany once used diesel vehicles as the future direction for the autoindustry industry to reduce carbon emissions, so it is not active in electric vehicle research and development investment and market development, the start behind the United States and China. Sales of electric cars in the European market rose 124 per cent to 90,623 in the third quarter of this year, according to the European Automobile Manufacturers’ Union, but still accountforited for only 3 per cent of new car registrations.
In addition, German auto unions fear that the popularity of electric vehicles will trigger a massive wave of job losses in traditional car manufacturing. Compared with the conventional fuel vehicles move hundreds of thousands of components, electric vehicles itself fewer components, simple assembly, and the widespread use of automated robots, electric vehicle production will require a significant reduction in the manpower required. According to a 2018 report by the Institute for Labour and Employment of the German Federal Labour Office, Germany’s GDP could fall by 0.6% by 2035 as the country’s overall transition to electric vehicles, 114,000 jobs will be cut. As a result, the development of electric vehicles in Germany is facing some political pressure.
But this is a fleeting opportunity at a critical time in the European car market’s transition to electric vehicles. Both Musk and Germany’s home-grown car industry are aware of this.
In early November, Volkswagen announced that it would invest 60 billion euros over the next five years in research and development of electric and hybrid vehicles, as well as digital upgrades to its factories. Over the next decade, VW will launch 75 all-electric and 60 hybrids to the market. By 2029, VW is expected to sell 26 million all-electric vehicles and 6 million hybrid vehicles. Volkswagen’s plant in Zwickau, Saxony, is undergoing a digital production module transformation and will be fully operational in 2021, with an annual production capacity of 330,000 vehicles, making it the largest and most productive electric vehicle production plant in Europe. In addition, two other VW plants in Germany are being upgraded, while VW’s plants in China and the United States will increase production of electric vehicles.
At the government level, germany has made new energy vehicles the main development direction of the future in order to achieve the EU’s carbon reduction targets. In early November, Merkel’s government announced that it would invest 3.5 billion euros to expand public charging piles for electric vehicles, with a view to building 1 million charging piles by 2030. Germany currently has only 21,000 charging piles. Germany is expected to have between 7 and 10 million electric cars by 2030.
The German government also plans to increase subsidies for some small electric cars from 2021. Under the agreement, consumers will buy electric cars for less than 40,000 euros, and the subsidy will be increased from the current 4,000 euros to 6,000 euros, and the subsidy for hybrid vehicles will be increased from 3,000 euros to 4,500 euros. For electric vehicles with a price of more than 40,000 euros, the subsidy will be increased by 25%. Electric cars over $60,000 are not covered by the subsidy.
Tesla looks to Germany’s technological and talent advantages
Tesla’s plant in Germany, on the one hand, is to seize the European electric car market, more importantly, germany’s strong automotive technology reserves, talent advantage and industrial chain.
A few years ago, Musk admitted that Germany had a strong engineering base and began quietly laying it out in Germany. In 2016, Tesla acquired Grohmann Engineering, a well-known automation technology company at Plum, which is also a key supplier to Bosch, BMW and Daimler.
In addition, Musk, who poached Peter Hochlinger, an executive from Audi, to run Tesla’s production at its Vermont plant in California, has streamlined the production process at the Tesla plant in just three years, increasing the daily production of the Tesla Model 3 to 1,000 vehicles. It also gives Musk a glimpse of the german car industry’s process management and talent advantage.
But despite the Brandenburg government’s policy support and hundreds of millions of euros in subsidies, there are still big variables about whether Tesla’s superplant can replicate the success of the Shanghai plant.
The first is the increased competition in the electric vehicle market. The Tesla Model 3 entered the European market in March and quickly became Europe’s best-selling electric model, but it did not make the top 10 in Europe’s list of best-selling cars, selling just 175,000 vehicles in September. Tesla’s biggest market in Europe is Norway, where electric cars are selling hard, thanks to high government subsidies. In the Norwegian market, Volkswagen’s new version of the Golf is catching up with Tesla. Currently, the European market segment, in the high-end electric car market, there are Porsche’s Taycan and Jaguar’s I-Pace, the lower end of the market by Volkswagen’s ID3 and Renault’s Zoe, Tesla’s German super plant will be put into production, will mainly produce affordable SUV Tesla Y model, facing the fussy European customers Tesla still faces a number of challenges about its positioning.
Second, with the former car at Berlin’s new airport, the construction and efficiency of Tesla’s superfactory still faces the risk of German bureaucracy. In today’s electronic day, for example, Tesla’s application for government subsidies to the Brandenburg Bank must be in paper in writing, in line with German banking tradition.
In addition, the German auto trade unions have a strong voice, and German labour laws give workers a lot of autonomy in management. With low wages, brutal layoffs, 996 jobs, casual overtime, anti-unionism and so on, Musk’s controversial management at his Vermont plant is clearly not appropriate to get to Germany.
Outside of the german public opinion over the location of Tesla’s superfactory in Brandenburg, there is also doubt sly doubts about the uncertainty surrounding the Superplant project. Some media pointed out that in the Greenhead site near a large nature reserve, whether the super plant can pass the environmental assessment, whether it will attract protests and obstruction of environmental groups, is still unknown. Der Spiegel even questioned, “Musk has always been known for his promises of open-mouthed, empty-mouthed promises, and he may be sincere, or he may be just arrogant … How credible does Musk’s promise to build a superfactory in Brandenburg, Germany, depending on Germany’s relatively high labour costs and energy prices? “
Der Spiegel’s online analysis suggests that it is hard to say who will have an advantage over the electric car industry, with Tesla as the representative of the “new force” and the traditional auto industry. The advantage of a century-old store like Volkswagen lies in mass production and quality, while Tesla, which is known to disrupt the auto industry, has its expertise in driving styles, computer technology and the Internet. Herbert Diess, Volkswagen’s chief executive, also said that Volkswagen’s strength lies in hardware, and Tesla’s strength son is software, which has a wide range of space for cooperation. Volkswagen will meet with Musk to discuss the possibility of a tie-up and a stake.