What Will Tesla's New German Gigafactory Mean For Germany's Auto Industry?

Seven years ago, Mathias Döpfner was at a ceremony celebrating Tesla founder Elon Musk. Döpfner, the head of German media company Axel Springer, was seated next to a CEO of one of Germany's biggest carmakers, and he turned to him and asked, "Isn't this guy dangerous for you?"

As he later recounted, the CEO shook his head. "These guys in Silicon Valley, they have no clue about engineering, about building really beautiful and great cars," the CEO told him. "So we don't have to worry."

At the time, the value of Tesla's shares was $23 billion, a quarter of that of Germany's largest carmaker, Volkswagen. But times have changed. Tesla's market capitalization has skyrocketed to more than $700 billion, more than three times that of Volkswagen, Daimler and BMW — Germany's three largest automakers — put together.

To make matters worse for Tesla's German competitors, Musk is overseeing the finishing touches on his company's latest project — Tesla's newest Gigafactory, in a town southeast of Berlin.

The Silicon Valley electric automaker plans to start building cars outside Germany's capital this summer, threatening to upend Germany's traditional combustion engine car culture. When the Gigafactory Berlin-Brandenburg opens later this year, it will produce batteries, drivetrains — and eventually, 500,000 of Tesla's trademark electric vehicles per year.

"In three months, there will be a new road here, four lanes, a bike tunnel, a new highway exit over there and a new train station here outside the factory," says Arne Christiani, mayor of Grünheide, the town of 9,000 nestled in a forest.

Tesla's Gigafactory promises to transform the sleepy settlement into one of Europe's largest factory towns, with 40,000 workers, an estimated half of them commuting from Berlin, about 20 miles away.

"At the end of every fiscal year for 16 years in a row, I've had to apologize for our town's balance sheet and for the fact that we failed to bring high-quality jobs to the region," says Christiani. "Now that we have the opportunity to do so, during a pandemic no less, is a once-in-a-lifetime chance for me."

This is Tesla's fourth Gigafactory — after Reno, Nev., Buffalo, N.Y., and Shanghai — and the company's first in Europe. Musk chose Grünheide from other possibilities across Europe for its location — right off the Autobahn, on a train line and near Berlin's new airport — and because building it would be quick: Two decades ago, the town had approved plans for a BMW auto plant that was never built.

The new factory isn't the only thing that's come easily for Tesla in Germany. Earlier this month, Germany named Tesla one of 11 companies operating in the country to receive billions of dollars' worth of government subsidies aimed at increasing battery cell production.

"There is a massive movement going on within Europe to transition to a zero-carbon economy by 2050," says Christiaan Hetzner of Automotive News Europe.

The European road transport sector accounts for a fifth of the continent's carbon emissions, Hetzner says, and German automakers, which specialize in big, heavy SUVs and sedans, are falling behind in reducing their fleets' emissions.

"If they don't achieve their targets, they are facing fines that are so considerable that they could put entire businesses or entire companies out of business," says Hetzner.

Last year, Volkswagen missed its carbon emissions target for its passenger car fleet by just 0.5 grams per kilometer, forcing it to pay the EU a fine worth $121 million.

"If you miss it by several grams and you have a significant fleet, you are probably talking something in terms of at least a billion in fines that one single company would have to simply pay to the European Union," Hetzner says.

Two years ago, Fiat Chrysler Automobiles faced bankruptcy when the EU threatened to fine it $2 billion because its car fleet's carbon output was too high. Instead, the company made a deal with Tesla to pool their fleets together to reduce Fiat Chrysler's emissions. The deal ensured Tesla receives hundreds of millions of dollars a year — enough to fund its German Gigafactory — and Fiat Chrysler was saved from insolvency.

This is a lucrative business for Tesla. The company made $3.3 billion in the past five years from 11 states in the U.S., which, like the EU, forces automakers that can't meet emissions reduction goals to buy credits from companies like Tesla. But this revenue stream promises to run dry in the coming years, as EU automakers ramp up their electric vehicle fleets.

Hetzner says Germany's biggest automakers have been forced by EU laws to ramp up production of battery electric vehicles and plug-in hybrids, but it's taken them years to do this and they're struggling to meet EU emissions reduction targets.

Birgit Dietze of IG Metall, Germany's autoworkers' union, says because Tesla's entire fleet is electric, the company is already ahead of its German competitors.

"Tesla has a bit of an advantage because it isn't having to shift from using old tech to new tech, but is starting immediately with new technology. This simplifies matters somewhat," says Dietze.

What might not prove as simple for Tesla will be adjusting to Germany's union rules. In the U.S., Tesla workers have filed complaints about low pay and poor working conditions, and Musk has resisted their efforts to unionize. But IG Metall is a powerful force in Germany. In 2018, it won the right to a 28-hour work week and a 4% pay raise for its industrial workers after a series of strikes that cost German automakers millions of dollars.

"We expect Tesla to adhere to German labor law, and we're confident it will," says Dietze.

Tesla did not respond to interview requests from NPR.

Back at the Gigafactory construction site, Mayor Christiani is confident that everything will work out — for Tesla and for his town. He says Germans, who are among the world's biggest car enthusiasts, can't wait for the factory to be up and running.

"On weekends, we're already seeing Tesla tourism here. Regardless of the weather, fans arrive from all over with cameras to document the construction of the factory," he says.

Christiani drives a work-issued Audi with an internal combustion engine. He says he's not sure if the town will switch its fleet to Teslas. But if they do, he says, they'll make sure they're built here.

Esme Nicholson contributed to this story from Berlin. [Copyright 2021 NPR]