BERLIN -- Tesla is pausing its plans to make battery cells in Germany as it looks at qualifying for U.S. electric vehicle and battery manufacturing tax credits, the Wall Street Journal reported.
Tesla is looking to tap into tax credits that will be offered to automakers who produce EV components, such as batteries, in the U.S., the paper said, citing people familiar with the matter.
The EV maker is ramping up production of Model Y crossovers at its new European plant in Gruenheide, near Berlin, which opened in March.
Tesla had planned to build a battery plant next to the car assembly plant to generate more than 50 gigawatt hours a year.
The Wall Street Journal said Tesla is now considering shipping the equipment destined for battery production in Gruenheide to the U.S. instead.
The U.S. tax credits are part of the Biden administration's Inflation Reduction Act (IRA) signed into law last month.
For example, the government provides a tax credit of $35 per kilowatt hour (kWh) for each U.S.-produced battery cell.
Under the IRA, consumers who purchase electric vehicles are also qualified to receive a rebate of $7,500, however the vehicles must meet certain domestic manufacturing requirements.
The surging cost of energy prices could be an additional factor behind Tesla's decision, the Wall Street Journal report said.
The automaker is already looking to ramp up in-house production of its batteries with pilot projects in California and a production facility in Texas.
Battery systems are the most expensive single element in most EVs, so making lower-cost, high-performance packs is key to producing affordable electric cars that can go toe to toe with combustion-engine rivals on sticker prices.
By using bigger cells and a new process to dry-coat electrodes, Tesla could halve the cost of a Model Y battery, saving more than 8 percent of the car's U.S. starting price, battery experts say.
Meanwhile, Tesla battery supplier LG Energy Solution said in July that it is looking at sites in Europe for a new battery plant and would ramp up production in Asia outside of China, where COVID-19 lockdowns and rising costs were weighing on profits.