Elon Musk picked a glitzy event in Germany, a few hours’ drive from the birthplace of the internal combustion engine, to drop the news that Tesla plans to open a factory in the country.
Tesla will round out its global manufacturing network with a factory near Berlin, along with an engineering and design centre, Musk said at the Golden Steering Wheel awards ceremony in the German capital on Tuesday attended by the CEOs of Volkswagen, Audi, and BMW.
Fresh off a surprise profit report that sent the company’s shares soaring, Musk threw down the gauntlet in front of rival executives that Tesla can no longer be dismissed as a niche automaker.
The news wasn’t completely unexpected. Musk had said that Tesla would announce the location of its European factory before the end of the year and that Germany was a front-runner. Nonetheless, Tuesday’s announcement bolstered the CEO’s flair-for-the-dramatic reputation.
Economy Minister Peter Altmaier trumpeted it as “a great success,” saying Germany had prevailed in “intense competition” with other European countries.
While adding a European factory raises the stakes for established automakers already facing a serious threat from the electric upstart, it will take time for the plant to get up and running. Musk estimated earlier this year that Tesla’s European Gigafactory probably won’t be operational until 2021.
Tesla accounts for almost one in three electric vehicles sold in Western Europe, and worldwide sales of its Model 3 have already overtaken those of BMW’s 3 Series sedans, although German sales remain disappointing.
“Elon Musk’s decision in favour of Germany… adds more momentum to electric mobility than 100 summits called by the chancellor,” said Ferdinand Dudenhöffer, head of the University of Duisburg-Essen’s Center for Automotive Research.
However, Electric vehicles more broadly have fallen short of ambitions, with Chancellor Angela Merkel this year targeting one million on the road by 2022 – two years later than she had previously aimed for.
German giants are behind in adapting fleets to meet new European emissions limits and have left it until late to commit to electric drive in a big way.
The entrant in the European EV market would bring a much-needed competition. Competition has always made the market better and faster, so it’s good news for Volkswagen, BMW and Daimler too, as well as for customers.
In short-term, the existing players won’t be losing too much sleep, but the danger is if they wait too long with their own credible electric vehicle offerings, they may begin to lose some of their credibility.
Still, building vehicles in a country that has some of the highest labour and energy costs worldwide are bound to be a challenge. European customers also expect a network of dealers and repair shops to reliably handle maintenance and repair work, which Tesla has struggled with lately.