Inside Tesla’s assault on Germany’s auto establishment

By Stefan Nicola

Bloomberg

Jan. 18, 2020 6 AM PT

German rangers stand guard to shoo away visitors from a nondescript stretch of forest near Berlin, where a sign nearby warns of “Lebensgefahr” (mortal danger).

The precautions are part of the frantic activity underway to set up Tesla Inc.’s latest assembly plant, Elon Musk’s most daring attack on the German auto establishment. Workers wielding metal detectors have started combing through an area equivalent to some 200 football fields to search for errant ammunition lurking beneath the sandy surface of tiny Gruenheide.

It’s the first stage to prepare a site that could churn out as many as 500,000 cars a year, employ 12,000 people and pose a serious challenge to Volkswagen, Daimler and BMW. Once it is deemed free of World War II explosives, harvesters and trucks will roll in to clear thousands of trees in the first stage of development. The work needs to be done by the end of February to meet Tesla’s aggressive timetable.

The project represents a second chance for the quiet town, nestled between two lakes on the edge of a nature reserve southeast of Berlin.

Gruenheide lost out on a similar factory two decades ago, when BMW opted for Leipzig. The memory of that missed opportunity motivated town officials to move quickly when Tesla expressed interest in building its first European factory in Germany, with a plot set aside for industrial use and offering easy access to the autobahn and rail lines.

“The investment is a unique opportunity,” Mayor Arne Christiani said in his office, where a map of the Tesla project hangs on the wall. “It gives young people with a good education or a university degree the possibility to stay in our region — an option that didn’t exist in past years.”

If it clears Germany’s red tape, the plant will make Tesla batteries, powertrains and vehicles, including the Model Y crossover, the Model 3 sedan and any future cars, according to company filings. The factory hall will include a pressing plant, paint shop and seat manufacturing in a building that will be 2,440 feet long — nearly triple the length of the Titanic. There’s space for four such facilities.

Musk is taking his fight for the future of transport into the heartland of the combustion engine, where the established players long laughed off Tesla as an upstart on feeble financial footing that couldn’t compete with their rich engineering heritage. He casually dropped the news at an awards ceremony in Berlin in November, leaving the top brass of Germany’s car industry shell-shocked.

“Elon Musk is going where his strongest competitors are, right into the heart of the global auto industry,” said Juergen Pieper, an analyst with Germany’s Metzler Bank. “No other foreign carmaker has done that in decades given Germany’s high wages, powerful unions and high taxes.”

Building a factory in Europe’s largest car market is a major test of Musk’s global ambitions. Demand in the region is flat, and buyers are more loyal to local brands. Meanwhile, labor costs in Germany’s auto sector are 50% higher than in the U.S. and five times what they are in Poland, just an hour’s drive away from Gruenheide.

On the positive side, electric cars require less labor to build, and Germany has a deep reserve of auto experts. The location also offers the soft-power advantage of proximity to the country’s leaders.

Under pressure for being slow to pick up on the electric car shift, German Chancellor Angela Merkel’s government extended a welcoming hand to Musk. Economy Minister Peter Altmaier offered to try to ease regulatory hurdles that may snag construction. “There’s a lot at stake” in Tesla’s plan, he said soon after the project was announced.

Musk’s incursion comes at a strategically opportune time. Riding a wave of optimism after successfully starting deliveries of its China-built Model 3 sedans a year after breaking ground on a factory there, Tesla’s stock has doubled in the past three months.

Meanwhile, German peers are struggling with the costly shift away from combustion engines. Volkswagen and Mercedes-Benz parent Daimler announced thousands of job cuts last year, when German car production fell to its lowest level in almost a quarter of a century.

For Gruenheide, the planned investment has suddenly transformed the town of 8,700 people into a sought-after location. Local officials receive development proposals on a daily basis: anything from 22-story apartment towers to U.S.-style shopping malls, said Christiani, who hopes the plant will help unlock financing for public transport, schools and medical facilities.

In the town hall, five thick binders are available for locals to peruse the project’s details, including 463 trucks expected to roll into the plant each day, a rail spur for train deliveries and an on-site fire brigade.

Tesla still has to jump through a number of hoops. Residents can raise objections, and some complain they’ve seen little from the company since its blockbuster announcement. Meanwhile, the local water utility warned it won’t be able to adequately supply the site in time and raised concerns over its location in a zone where sources of drinking water are protected by law.

And then the company has to carry out initiatives to protect wildlife — including scaring off any wolves in the area, relocating hibernating bats and removing lizards and snakes until construction is finished. The U.S. carmaker also has to replace felled trees.

The mayor expects these hurdles to be cleared so that the first made-in-Gruenheide Teslas can roll out in July 2021.

“The forest is classified as a harvest-ready, inferior pine forest,” Christiani said. “It was never supposed to be a rainforest.”