Tesla plant opening hit by legal challenge over water

When Elon Musk was asked last year whether the factory Tesla Inc. was constructing in Germany would deplete the area's water supply, he broke out in laughter and called the notion “completely wrong.”

Six months later, water is one of the primary reasons the plant still is not producing vehicles.

While Musk in August flippantly pointed to water “everywhere” around Berlin, the region is suffering from falling groundwater levels and prolonged droughts due to climate change.

That has sparked a legal challenge that will go to court next week and an acknowledgment from local authorities that supplies will not suffice once Tesla ramps up the plant.

The issue has the potential to further delay or even stop the 5 billion euro ($5.7 billion) project in what could turn into a costly setback to the automaker's expansion.

“Tesla will increase the problem for sure,” said Irina Engelhardt, who heads the hydrogeology department at Berlin's Technical University. “There might not be enough water for everyone.”

Ramping up the factory in the eastern state of Brandenburg is key to Tesla's global ambitions.

The EV maker needs a manufacturing base in Europe to supply the region's fast-growing electric-vehicle market, which is expected to remain much bigger and more competitive than the U.S. for years to come.

While Tesla has erected the plant at breakneck speed, it's still waiting for final approval from local authorities just as Volkswagen Group, Mercedes-Benz and Stellantis broaden their own EV lineups.

“The current water supply is sufficient for the first stage of the factory,” Brandenburg Economy Minister Joerg Steinbach said in an interview. Once Tesla expands the site, “we will need more.”

Musk, 50, has been on a charm offensive to promote the plant Tesla has said will eventually produce batteries and as many as 500,000 cars annually.

He has tweeted in German, rubbed shoulders with local politicians and threw an Oktoberfest-style county fair at the construction site in October.

But he has also frustrated authorities with several last-minute changes to the factory and sparked outrage in Germany last week for posting a meme evoking Adolf Hitler.

The country's vehicle regulator said this week it's investigating one of Tesla's driver-assistance features.

Much of the optimism about Tesla's growth prospects this year rests on the company's ability to get the factories it's been constructing near Berlin and Austin, Texas, up and running.

When Credit Suisse analysts raised their share-price target to $1,025 from $830 last month, the first factor cited was capacity expansion.

The Berlin plant “arguably serves as Tesla's most critical incremental source of capacity,” the analysts led by Dan Levy wrote in the Jan. 18 report. Ramping it up should bolster supplies in a market that's been “ground zero for the global EV inflection.”

German politicians have backed the investment because it promises thousands of new jobs in a region that has little heavy industry.

Yet progress at the site in the small town of Gruenheide has been slower than hoped, with the pandemic, red tape and backlash from locals over water usage delaying the start of production by several months.

Brandenburg drought

The Nabu and Gruene Liga groups sued Brandenburg's environment office last year, saying it failed to take into account the impact of climate change when approving a 30-year permit to pump more groundwater for Tesla's factory.

Authorities say the issue is manageable and that they are already looking for additional supplies. A decision in favor of the environmentalists would likely delay the plant's opening and could derail it altogether. A first court hearing is scheduled for March 4.

Tesla and Brandenburg's environment ministry, which is in charge of the office, did not respond to requests for comment.

Experts say some of the environmentalists' concerns are valid.

Brandenburg's water table has been dropping for the past three decades. Droughts in each of the past four years have resulted in wildfires and crop failures. Meteorologists are predicting more frequent heat waves, further weakening the ability of local soil to store rainfall.

Tesla's factory would roughly double the amount of water consumed in the Gruenheide area, according to Axel Bronstert, a hydrology professor at the University of Potsdam.

He said it's “naive” to think reserves would suffice for both the factory and residents, and called the groundwater situation in Brandenburg “serious.”

Regardless of how judges rule in the case, the local water works will have to invest in new infrastructure including a wastewater treatment plant to ensure adequate supplies -- major engineering projects that authorities admit could take years.

“There are considerable delays in the processing of the necessary measures,” Andre Baehler, the head of the local WSE water works, said earlier this month during a Brandenburg parliamentary environment committee hearing.

Tesla flagged in its impact report last year that water is becoming increasingly scarce due to climate change.

The company said it withdraws less water per vehicle produced than the majority of established carmakers, and that it's taking steps at the German plant to further reduce usage.

Thirsty work

As per a contract with local authorities, the Gruenheide site would get 1.4 million cubic meters of water annually -- enough for a city of around 40,000 people.

Steinbach said that while he is taking the environmental concerns very seriously, the large majority of the local population is in favor of the factory. Brandenburg authorities are backing efforts to drill for more water in the area and supplies could also be sourced from further away if necessary, he said.

But digging new wells probably will not make the concerns disappear. Manuela Hoyer, who lives just a few miles from the factory, says Tesla is getting preferential treatment from local politicians even though it would make an already serious environmental issue worse.

“We have been told for years that we should not water our lawns,” Hoyer, who is active in a citizen's initiative monitoring the project, said in an interview. “Then the world's richest man comes along and gets everything he wants.”