BERLIN -- Elon Musk told an award ceremony crowd that Tesla Inc. plans to build its next factory near the German capital of Berlin, sending a stark message to some of the world’s most prestigious automakers that he’s headed for their home turf.
The electric-car maker also will establish an engineering and design center in Berlin near the new airport, Tesla’s chief executive officer said late Tuesday. He made the announcement while accepting an award for the company’s Model 3 sedan.
Tesla will build the Model 3 and Model Y at the plant starting in 2021, the Financial Times said. Musk, in a tweet, said that Tesla will build batteries, powertrains and vehicles, starting with Model Y crossovers at the Berlin factory.
Musk, 48, is laying the groundwork for his next plant just as Tesla is preparing to start sales of cars built on the outskirts of Shanghai. Building a European factory will up the stakes for established automakers already facing a serious threat from the electric upstart. Regulators are increasingly mandating that companies build battery-powered vehicles despite manufacturers struggling to produce them profitably.
Morgan Stanley analysts led by Adam Jonas wrote in a recent note that Germany would be the “logical choice” for the so-called Europe gigafactory. The country “is the heart of the global luxury-auto market, with an economy dependent on internal-combustion tech and a government focused on climate change,” Jonas said.
Chancellor Angela Merkel’s government and local automakers have agreed to boost incentives for EVs, intensifying Germany’s effort to move away from the combustion engine to reduce exhaust emissions.
Still, building vehicles in a country that has one of the highest labor and energy cost worldwide is bound to be a major challenge, especially as European customers expect a close-knit network of dealers and repair shops to handle maintenance work.
Musk made the announcement about the Berlin plant at the Golden Steering Wheel awards ceremony in Germany. He said the factory will be near the new Berlin airport. Musk had said in June last year that Germany is the frontrunner for its first factory in Europe.
"Tesla is coming to Brandenburg with a big investment," Dietmar Woidke, state premier of Brandenburg, which surrounds Berlin, said in a statement. "We lobbied for this for a long time in intensive talks and with good arguments."
The company is yet to prove it can be consistently profitable. Tesla has said it expects to be cash flow positive, but faces big investments with the launch of new factories and development of products including a pickup truck and a semi-truck.
Reputation for quality
Musk's appearance at the awards ceremony is another example of Tesla's efforts to co-opt marketing tactics employed by German manufacturers, which have a reputation for quality.
Tesla, for instance, has tested its cars on the Nordschleife, the notorious northern loop of the Nuerburgring racing track, as a way to burnish the brand's reputation for reliability and sporting prowess.
The company has an engineering firm in Pruem, Germany, that specializes in automated manufacturing systems for battery-making plants.
Economy Minister Peter Altmaier said on Wednesday that there had been no discussion yet of German government subsidies for Tesla.
"Subsidies have not yet been discussed. It's clear that Tesla - if it invests in Germany and creates jobs here, will be treated like all other companies in the automobile and automotive industry," Altmaier told reporters.
"That means we will treat all players who invest in Germany equally and without discrimination," he said.
Reuters contributed to this report.