Elon Musk to officially open German factory as Tesla looks to ease demand pressure

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SpaceX founder and Tesla CEO Elon Musk looks on as he visits the construction site of Tesla’s gigafactory in Gruenheide, near Berlin, Germany, May 17, 2021.
Michele Tantussi | Reuters

Elon Musk will officially open Tesla’s first manufacturing facility in Europe on Tuesday as the company looks to take pressure off its other factories in the U.S. and China.

The Tesla CEO will cut a red ribbon at the new Giga Berlin (or Gigafactory Berlin-Brandenburg) plant in Grünheide, a coal town in Brandenburg, Germany, within commuting distance of the capital.

Tesla sees the Berlin factory producing up to 500,000 vehicles annually.

Tesla has been struggling to keep up with demand and there are reportedly lengthy delays for Model Ys and certain Model 3s in different parts of the world.

Last week, Tesla had to temporarily shut production at its Shanghai plant due to Covid-19 cases resurgent in China. That limited production of made-in-China Model 3 and Model Y vehicles there for at least two days.

In recent quarters, Tesla has been exporting cars from China to customers in Europe.

Demand for EVs remains very high in Europe, and now Tesla can rely on some production on the continent, not solely to be shipped from China.

Giga Berlin has been several years in the making. It is extremely important to Tesla’s plans to expand globally following the opening of its Gigafactory 3 plant in Shanghai in late 2019. The company has also opened another plant in Austin, Texas, recently.

In November 2019, when Musk announced plans to build a car plant in Germany, he lauded German engineering.

He said: “Everyone knows that German engineering is outstanding, for sure. That’s part of the reason why we are locating our Gigafactory Europe in Germany. We are also going to create an engineering and design center in Berlin, because Berlin has some of the best art in the world.” 

German authorities gave Tesla conditional approval to start production on March 4.

The conditional license for the vehicle and battery plants in Brandenburg was expected following months of delays. Tesla had intended to start production of vehicles by early summer of 2021, but the Covid pandemic, supply chain complications and clashes with environmentalists slowed its progress.

Thirsty factory?

While the plant is up and running, water usage at the facility remains an issue.

“The impact on the local water supply continues to be a concern for the future of the plant,” Deutsche Banke autos sector analysts said in a research note Monday. They added that Tesla will need to provide evidence of appropriate water usage and air pollution control in order to truly ramp up volume.

“Sources indicated that the company may completely exhaust the water reserve in the region with the first stage of the plant build out, and will need additional extraction permits in order to expand its capacity any further in the future,” the note said.

“As such, Tesla will reportedly have enough supply to support the initial 500,000 volume target, but may face additional hurdles as it plans to expand each of its Gigafactories to ~1 million units of annual production.”

—Additional reporting by CNBC’s Lora Kolodny.

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