Tesla’s German Bureaucracy Breakthrough Dimmed by Supply Risks

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Tesla’s German Bureaucracy Breakthrough Dimmed by Supply Risks
Credit: © Reuters.

(Bloomberg) --

Almost two years after Tesla (NASDAQ: TSLA ) started breaking ground on its factory outside Berlin, the electric-car maker finally  secured approval for the €5 billion ($5.5 billion) project underpinning its European expansion.

Authorities in the state of Brandenburg announced the green light last week after months of delays linked to environmental concerns, including water usage. If all goes as planned, the facility will be producing Model Ys for customers before the month is over. Elon Musk took to Twitter to thank local authorities, writing in German that the future is "very exciting” and vowing to shake a leg at the plant’s opening ceremony, just as he did when Tesla inaugurated its Shanghai facility two years ago.

A celebratory dance is probably called for after successfully maneuvering through Germany’s infamous red tape. The company had to relocate hibernating bats and lizards, replant more trees than it cut down and reduce water consumption as much as possible to appease locals. The approval documents comprise more than 23,700 pages and roughly 400 conditions Tesla still has to meet to secure a production permit, including setting up emissions-monitoring equipment and introducing measures to protect local groundwater. Tesla said it expected to complete the process in around two weeks.

Musk has reason to hurry. A few hours after Tesla got final approval, Volkswagen (DE: VOWG_p ) announced it’s moving ahead with a plan to add a €2 billion EV factory close to its headquarters in Wolfsburg, Germany. The new plant is targeting 10 hours of production time per car — much quicker than it currently takes to piece together a vehicle at VW’s other facilities, and in line with what Tesla’s site is supposed to achieve.

VW CEO Herbert Diess replied to Musk’s tweet, saying the German giant is committed to setting new standards when it comes to quality and productivity at the factory it has code named Trinity. Peers including Renault (PA: RENA ) and Jeep maker Stellantis also are retooling factories to make EVs.

Ramping up a new plant is always difficult. Sales of made-in-Germany Teslas may be delayed by two to three months because of pre-production issues, particularly in the paintshop, Germany’s Automobilwoche reported on Sunday. A coronavirus outbreak among workers last month also hindered progress, the weekly magazine said. Musk himself has warned of significant production risk in Gruenheide because Tesla will be trying out lots of new technology there for the first time. 

Getting enough manpower is another challenge. Tesla lists dozens of job openings for the plant on its website, and Musk this week retweeted his company’s call for applications. Around 2,500 of as many as 12,000 positions have been filled, according to local officials.

An even bigger concern than scaling production is the disruption to supply chains spurred by Russia’s invasion of Ukraine. The country is a major source of wire harnesses, and Russia supplies raw materials including nickel. Prices of the key metal used in EV batteries exceeded $100,000 a ton this week as an unprecedented short squeeze forced the London Metal Exchange to shut down for days. 

Supply chains to and from China also are coming under pressure because land routes through the war region are making transport increasingly difficult, Germany’s auto lobby warned last week. 

European carmakers from VW to BMW and tire maker Michelin (PA: MICP ) have reduced or halted output at several of their European factories. Toyota said on Wednesday it’s reviewing production plans due to mounting disruptions.

VW’s Diess fears the war could hit economies harder than Covid-19 did. The CEO is in favor of maximum sanctions against Russia, but also wants leaders to go to the negotiating table, he told the Financial Times on Thursday.

“What we don’t want is a never-ending war in Ukraine,” Diess said.

©2022 Bloomberg L.P.

© Bloomberg. A road sign for the Tesla Inc. Gigafactory construction site in Gruenheide, Germany, on Friday, Feb. 11, 2022. Progress at the site has been slower than hoped, with backlash from environmental groups concerned about water use and wildlife postponing the start of production by several months. Photographer: Liesa Johannssen-Koppitz/Bloomberg

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