When the spontaneous Musk meets the stereotypical German: Berlin factory fears it will be difficult to replicate the speed of Shanghai

Solving the problem is much tougher than Musk expected

Underlined.

  1. In July 2020 Musk said that the Berlin superfactory would go up at an almost impossible pace.
  2. The main construction of the Berlin superfactory is now nearing completion, but the plant may not start producing the Model Y electric car until 2022.
  3. There are reports that Musk has also recently endorsed the idea that the Berlin mega-factory production will be delayed by several months.
  4. Musk’s troubles may make him “question whether the ‘Made in Germany’ stamp on the bottom of every car that comes off the line is worth its weight in gold.
  5. While the local government is excited about landing the Berlin superfactory, others may not be supportive.
  6. In retrospect, Musk might have been better off building factories in other EU countries.

Tesla was gaining momentum in November 2019 when Elon Musk announced a major electric car manufacturing plant in Germany, the heart of European car manufacturing. At the time, Tesla had several consecutive profitable quarters and the company’s stock price was soaring; more importantly, Tesla’s mega-factory in Shanghai was already completed and the plant was ready to produce Model 3 electric cars just 11 months after the groundbreaking.

On top of that, Tesla has just reached an agreement with Fiat Chrysler to sell carbon credits. Encouraged by the smooth start-up of the Shanghai mega-factory, and with ample funds from the sale of carbon credits, Musk intends to replicate the model in the green and lush Glen Head, Germany. Tesla plans to spend $4.9 billion to build the plant about 38 kilometers east of Berlin, Germany, and in July 2020, Musk wrote on his personal social media account, “The Berlin Superfactory will go up at an almost impossible pace.”

When the spontaneous Musk meets the stereotypical German: Berlin factory fears it will be difficult to replicate the speed of Shanghai

But that’s not the case.

The main construction of the Berlin superfactory is now nearly complete, but the plant may not start producing the Model Y electric car until 2022, which is several months later than the original goal of starting production on July 1 of this year. Considering the environmental assessment process in Brandenburg, production will even be later than planned.

When the spontaneous Musk meets the stereotypical German: Berlin factory fears it will be difficult to replicate the speed of Shanghai

The first step in the prep work for Tesla’s Berlin mega-factory was to cut down more than 2,000 acres of forest

In fact, the problems Tesla faced in building the plant in Germany were much tougher than Musk had anticipated. Tesla removed unexploded World War II bombs from the site, cutting down thousands of acres of trees and causing damage to bat and other animal habitats; coupled with the huge demand for water to build the plant, the project has also faced strong opposition from environmentalists. Germany’s largest union, IG Metall, is trying to set up an organization at the Tesla plant. On top of that, the Berlin mega-factory project is under scrutiny for possible labor law violations during construction and could be fined for installing sewage pipes without a permit.

Less bureaucracy would be better
Matthias Schimdt, an independent automotive analyst in Berlin, Germany, said, “Although the Tesla factory still seemed to be going well a few weeks ago, in reality there are dark currents.” He believes that Tesla’s progress on this project is much like the new airport in Berlin, Germany. The new airport was built quickly, but its entry into operation was delayed by nearly 10 years because of difficulties in obtaining approval from German government agencies for operating applications. Schmidt said, “While Tesla is just a stone’s throw away from putting into operation the new airport in the German capital just last year, the situation is not the same.” “It just highlights that in Germany, where ‘bureaucracy’ is rife, things are not easy to do.”

The European car market is lucrative, but Musk has been slow to achieve his goal of entering the local market. Especially when competing with German automakers like Volkswagen, Daimler and BMW, the delay in opening the Berlin superfactory has complicated how Tesla can stay on top of the electric car industry. Tesla may be the world’s most valuable automaker, but it is far from the largest, with only a fraction of the capacity of the German, U.S., Japanese and South Korean auto manufacturing giants. Tesla produced less than 500,000 units last year, compared with 9.3 million for VW. While Tesla’s Shanghai mega-factory is an important addition to its Fremont, California, plant, without the Berlin mega-factory and a second U.S. car manufacturing plant being built near Austin, Texas, Tesla won’t be able to meet Musk’s long-emphasized ambitious goal of producing millions of electric cars a year.

Garrett Nelson, senior equity analyst at market research firm CFRA Research, said, “With the incredibly fast pace of construction of the Shanghai superfactory, they may have misjudged the speed at which the Berlin plant was completed and put into operation, perhaps not fully accounting for the significant difference between the two. ” Nelson added that the timing of the Berlin plant construction also coincided with logistical and supply chain problems caused by the epidemic. “Tesla is doing everything it can to move forward with its plans, but the reality is that the Berlin superfactory start-up could be delayed until early 2022.”

When the spontaneous Musk meets the stereotypical German: Berlin factory fears it will be difficult to replicate the speed of Shanghai

Tesla’s Berlin mega-factory may be delayed until early 2022

Reassuringly for investors and analysts, Tesla said in its April 26 financial report that “the Texas and Berlin plants are progressing well. But Musk recently endorsed the idea that construction would be delayed by several months, according to reports.

In the earnings call, Musk said, “We expect limited initial production at these plants this year, with mass production at the Texas and Berlin superplants next year.” But during an unexpected visit to the Glen Head construction site this Monday, Musk said, “I think less bureaucracy might be better.”

At the time, Musk reportedly confessed that “some rules should be removed in some positive way. Otherwise over time there will be more and more rules, and eventually nothing will get done.”

Analysts have adjusted their expectations for Tesla to reflect the slowdown in progress. “The Berlin megafactory will be an early 2022 story,” said Dan Ives, an equity analyst at Wedbush. “Given the red tape in Europe, that timeline remains uncertain. But the Berlin hyperplant needs to be operational by March 2022 or it will impact Tesla’s capacity targets.”

Germany’s strong local parts supply base and high-quality manufacturing processes as a global auto manufacturing powerhouse attracted Musk to locate Tesla’s European plant here. Musk had also considered the United Kingdom. But Brexit ultimately proved to be too much of an uncertainty. Previously, Tesla not only marketed electric cars to the German market, but also acquired the local German Grohmann Engineering (Grohmann Engineering) in 2016 and renamed it Tesla Grohmann Automation (Tesla Grohmann Automation), rather like establishing a local beachhead in Germany. German car manufacturing giants are actively working to close the gap with Tesla in the field of electric vehicles, and Tesla’s plan is to take a firm foothold within Germany for direct face-to-face competition, which is one of the reasons for building a local plant. German Economy Minister Peter Altmaier said when the project was announced in 2019 that Tesla’s decision to “build a highly modern electric vehicle factory in Germany further confirms the attractiveness of Germany’s automotive manufacturing base.”

Analyst Schmidt said Musk may “question whether the ‘Made in Germany’ stamp on the bottom of every car that comes off the line is good value for money” given the troubles he has encountered.

Plant construction troubles continue
Glenhead is located in the eastern German state of Brandenburg, which is economically backward compared to the rest of Germany. Local authorities are excited by the prospect of the thousands of jobs and prestige the Tesla project will bring to the region. “Now thanks to the Tesla project, the entire region can look forward to new development opportunities that will allow Grünheide to make its mark on the world,” said Pamela Eichmann, president of the Grünheide local council.

While the local government is excited about the plant’s landing, others may not be supportive. The plant is situated between the A10 freeway and the Fangschleuse railway station, just under ten kilometers from the L cknitztal nature reserve. The L cknitztal Nature Reserve has been under protection since 1984 and was also registered as a Fauna-Flora Habitat (FFH) in 1998. The German word for Glenhead means “green wasteland”.

When the spontaneous Musk meets the stereotypical German: Berlin factory fears it will be difficult to replicate the speed of Shanghai

The Tesla Berlin SuperFactory project is also under scrutiny for possible labor law violations during construction and possible fines for installing sewage pipes without a permit.

The Tesla Berlin Superfactory covers 300 hectares. The first step in the preparations is to cut down more than 2,000 acres of forest, which is ironic for Tesla, whose motto is “accelerating the world’s transition to sustainable energy”.

In early 2020, local environmentalists stopped Tesla from cutting down the trees, but the company then obtained court approval to cut down first 92 hectares and then 82.8 hectares. Musk downplayed the quality of the trees cut, tweeting in January 2020, “This is not a natural forest, it’s an economic forest used to make paper. And the Berlin Superfactory will only affect a small portion of it.” Tesla also promised to plant three times the amount of trees cut down. But scientists generally warn that planting new trees is inferior to existing trees in terms of carbon neutral effects. Local environmental groups are also concerned that deforestation will negatively impact the animals that live in the forest.

In addition to cutting down trees, prep work for the plant includes relocating bats that live in the forest and removing seven unexploded bombs that were dropped during World War II.

The amount of water used by Tesla’s Berlin superfactory and its impact on the area where it will be located is also a major concern for local environmentalists. The German Nature and Biodiversity Conservation Union (NABU), one of the oldest and largest non-profit environmental organizations in Germany, is also a leading opponent of the Tesla plant. Most of the site is in a drinking water reserve, and the entire plant is within easy reach of two nature reserves,” said Christiane Schroeder, managing director of the agency’s Brandenburg branch. Nature reserves are known to be very sensitive to changes in groundwater levels.”

Tesla also installed sewage pipes without a permit, which has the local water authorities in an uproar. The Brandenburg Ministry of Agriculture, Environment and Climate Protection said construction of the Tesla factory was briefly called off and allowed to continue on April 12 of this year, but could still face fines. It was also reported that a number of local agencies, including the Brandenburg State Office for Occupational Safety, are investigating whether Tesla violated laws and regulations regarding minimum wages, working hours and working conditions during the construction of the factory.

Schmidt said, before obtaining all the necessary permits, Berlin super factory will not be able to start operations. The process is bound to be troublesome.

When the spontaneous Musk meets the stereotypical German: Berlin factory fears it will be difficult to replicate the speed of Shanghai

Local environmental groups protest environmental impact of Tesla’s plant

IG Metall, Germany’s largest union, initially welcomed Tesla’s plans to build a local superfactory. IG Metall had previously tried to unionize at Tesla Grossman Automation, but the latter failed to get IG Metall to do what it wanted by raising wages. Union president Joerg Hofmann said this month that the union still intends to set up a labor-management committee at the Berlin superfactory.

That is bound to be opposed by Musk. A ruling in 2019 required Musk to delete a tweet posted in 2018 that discouraged employees at the Fremont, California, plant from joining the union. But Musk ignored it.

IG Metall is currently awaiting details of the Berlin superfactory’s operations to see if Tesla intends to comply with local German regulations on wages and working conditions, said Birgit Dietze, IG Metall’s regional head, “We are looking at Tesla’s employment standards from a long-term perspective. “

Tesla owner and automotive analyst Michael Dunne (Michael Dunne) believes that the rapid start-up of Tesla’s Shanghai mega-factory has led it to move too quickly in Germany. Dunne’s market consulting firm, ZoZo Go, works with both car and parts manufacturers across Asia. “I think Tesla will think, ‘We took care of all the problems in less than a year. The Berlin plant can certainly do the same!” Dunn emphasizes that this is not the situation Tesla is experiencing in Germany, however.

For his part, environmentalist Schroeder argues that “Musk is more focused on his own career and new technologies than he is really committed to the issue of climate change.” “He saw a good opportunity to market his invention as ‘part of the solution to the climate change problem,’ but he didn’t realize that he was actually creating a new problem.”

In retrospect, Musk might have been better off building plants in other EU countries, analyst Schmidt said. “Maybe they’re starting to ask themselves if they really should have turned their attention to places like Poland or the Czech Republic,” he said. “Porsche then decided to build the Cayenne in Slovakia.”

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