Tesla's Texas push puts German plant on back burner

BERLIN — In an effort to get more electric vehicles and batteries out the door of its new plant in Austin, Texas, Tesla will shift resources away from a similar project in Berlin.

The EV maker has told local government officials in Gruenheide, Germany, that it still intends to open a battery factory there, where it also opened a vehicle plant this year, but the company now aims to ramp up battery production in Austin faster than planned.

The urgency to prioritize Texas is because of new U.S. tax rules under the Inflation Reduction Act that govern which electric vehicles can offer buyers a $7,500 tax rebate. The rules require that both the EV and its battery be produced in North America. As a result, Tesla has paused plans for a 50 gigawatt-hour battery factory next to its car assembly plant in Gruenheide.

But beyond its desire to qualify for the EV rebates, Tesla is also hustling to meet high U.S. demand for its vehicles. At the moment, the automaker faces a production bottleneck in Texas as it tries to produce enough batteries to keep up.

Panasonic recently said it will construct a new $4-billion battery plant 700 miles away in Kansas to supply the Texas auto assembly plant. But that project will likely take at least two years to come online.

Tesla is attempting to move some of its models to a more advanced battery, referred to as the 4680, that offers a 16 percent improvement in vehicle range compared with Tesla's current 2170 battery packs.

But as it slowly ramps up 4680 production, the Austin plant is still using mostly 2170 batteries to get its popular Model Y into the hands of buyers.

The real push at Austin will be getting 4680 batteries to a high enough volume to support Tesla's planned launch of the Cybertruck there next year. That electric pickup has been delayed so Tesla can meet the unrelenting demand for its other products — with batteries and battery materials being the bottleneck.

In a related move, Tesla now plans to construct a battery-grade lithium hydroxide refining operation in either Texas or in Louisiana, according to Reuters, citing an application filed with the Texas Comptroller's Office.

The project would allow Tesla to process "raw ore material into a usable state for battery production," according to the application.

The company has characterized that step as a way to secure its supply line for battery production.

Fitch Ratings predicted in a letter that other automakers will follow Tesla's lead on in-house lithium refining.

"We believe that this project by Tesla is of note, as it showcases the growing expediency of bringing upstream operations in-house in order to insulate firms against lithium price volatility," Fitch said.

But Fitch also noted that Tesla's plans are being driven by the new U.S. EV tax rules.

The Inflation Reduction Act, it said, "has driven automakers to source EV battery metals from regionally based producers and refiners. This is because the bill has introduced a critical metals policy to its EV tax credit, requiring that 40 percent of metals included in EV batteries must be extracted or processed in North America, or in a country that the U.S. has a free trade agreement (FTA) with."

While regional lithium and nickel mining projects are expected to grow exponentially over the next decade, Fitch pointed out, there is insufficient refining capacity in North America, meaning that these metals are exported to Asia for refining before being returned for use in EV battery manufacturing.

"Tesla's construction of a domestic refining facility will enable the firm to reduce the operational costs incurred from using refining facilities abroad, while also enabling their vehicles to qualify for the EV tax credits" in the new rules.