Tesla Aims to Replicate China Success With German Factory

Date : 01/21/2020 @ 10:59AM
Source : Dow Jones News
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Tesla Aims to Replicate China Success With German Factory

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By William Boston and Tim Higgins 

Elon Musk pulled off opening a brand-new car factory in China with breakneck speed, sending Tesla Inc.'s shares to record heights. A follow-up act in Germany faces potential speed traps.

Tesla, which in November outlined its German factory plan, in recent weeks filled in some details for building on a site outside Berlin. The new facility in the state of Brandenburg is slated to go up quickly, if not quite within a year's time as achieved in China. Mr. Musk, though, is known for aggressive self-imposed deadlines that are often missed.

Among the challenges for his German plan are two peculiar ones: colonies of bats and unexploded World War II bombs that would need to be removed from the factory site before construction can begin.

The two overseas factories are key to making Tesla a global car maker. Together with the company's main plant in Fremont, Calif., Tesla's production capacity could be on course to exceed a million vehicles a year. Tesla built about 50,000 cars in 2015, with its output rising to above 360,000 vehicles in 2019.

When Tesla can reach the million mark is uncertain. It plans an initial output of 150,000 cars in Germany, growing to 500,000 at a later, unspecified point, matching its China ambitions.

Tesla didn't respond to a request for comment.

The company wants to begin its German production, including its mass-market Model 3 car and the coming Model Y sport-utility vehicle, in July 2021, according to filings with the state government.

Tesla has indicated in filed documents that the facility outside Berlin would employ fewer than 4,000 people, though employment could grow to more than 8,000 as production increases.

An auto factory was last built in Germany by Porsche AG for its first all-electric sedan. After the unit of Volkswagen AG broke ground for the body shop in 2015, it took 48 months before production began.

Porsche had to meet strict environmental and architectural guidelines. The assembly facility near Stuttgart had to be largely underground to restrict its height to 38 meters (about 125 feet) so as not to block the flow of fresh air into the city.

Building a car plant in less than a year and a half is pretty much unheard of in the auto industry -- but Tesla just pulled it off in Shanghai. It took years to get China's permission to become the first foreign auto maker to set up a local manufacturing facility without a Chinese partner; once it was granted, however, state-backed entities threw their weight behind construction of Tesla's so-called Gigafactory.

It took less than a year from groundbreaking to the first vehicle rolling out of the factory in late December. The success in Shanghai helped fuel a rally in Tesla's shares. On Friday, the stock closed at $510.50, which compares with last year's low of $178.97 set in June.

Tesla is poised to overtake Volkswagen as the world's second-largest auto maker by market value, though it sells far fewer cars than the German company. No. 1 is Toyota Motor Corp.

Replicating its recent success will be a challenge for Tesla in Germany given labor, regulatory and environmental concerns. "Opening Gigafactory Shanghai in under a year is incredible," said David Whiston, an analyst for Morningstar Research Services. "I doubt Germany will move as fast as China permit-wise."

Local officials are trying to prove skeptics wrong. Brandenburg Economics Minister Jörg Steinbach invoked a rarely used law that allows the state government to expedite regulatory checks. Tesla was able to submit its formal application by the end of December and the environmental impact study just weeks later.

"Tesla operates on China speed," Mr. Steinbach said. "The Tesla team here is determined to beat the team that set up the site in China, even if only by a couple of weeks."

When Mr. Musk announced his plans for Germany last year, the Brandenburg state government responded by creating a task force to fast-track the approval processes. Tesla also should gain some time because the state established highway and rail access a decade ago when BMW AG was considering building a factory on the same site. BMW opted instead to build in Leipzig.

Still, Tesla faces challenges, including the bats. Colonies of the protected winged mammals live in the 382-acre patch of pine forest that has been designated for the Tesla factory. They would need to be relocated soon so that Tesla can clear the woods by March, when the felling of trees must be suspended under German environmental law to protect birds and other animals returning to nest in the spring.

"The [bats] are hibernating until the end of February and March. After that mating season begins," said Christiane Schröder, head of NABU, a German environmental lobby.

If Tesla misses the deadline, it could be months before the forest can be cleared for construction, jeopardizing the plant's production schedule. Tesla could apply to be exempted from the regulation in a bet that political backing for the project would hold sway.

In an environmental impact study made public in Germany on Jan. 7, Tesla promised to relocate the bats and plant three new trees elsewhere for every tree it removes. Mr. Steinbach said Tesla has been working with environmental groups to address their concerns.

Small groups of demonstrators -- some opposing Tesla's plan, others supportive -- gathered near the site on Saturday to voice their views. A more formal community meeting about the development is slated for March.

Tesla, though, may encounter another obstacle that is surely new for the company but not atypical for Germany: unexploded ordnance.

"It appears that there are World War II munitions on the property, specifically bombs dropped by American aircraft," Brandenburg Environment Minister Axel Vogel, a member of the Green Party, said. "We will remove any unexploded bombs wherever they are found."

Germany will foot the bill for the explosives removal, but the process could cause delays for construction.

--Yin Yijun contributed to this article.

Write to William Boston at william.boston@wsj.com and Tim Higgins at Tim.Higgins@WSJ.com

 

(END) Dow Jones Newswires

January 21, 2020 05:44 ET (10:44 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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