Elon Takes Berlin Plans for Tesla Plant Jostle German Car Industry

Electric automaker Tesla announced its plans to build a major factory just outside Berlin this week. The move is a major development in an industry shakeup that is causing the upheaval of the entire German automobile industry. By DER SPIEGEL Staff

Tesla built its Gigafactory in Shanghai in record time: Next up is a major new plant near Berlin, Germany.
VCG/ imago images

Tesla built its Gigafactory in Shanghai in record time: Next up is a major new plant near Berlin, Germany.

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Elon Musk has been receiving a lot of mail from Germany lately, with government ministers trying to flatter the tech entrepreneur in an effort to promote their states. Almost as soon as the Tesla CEO announced his intention to build a "Gigafactory" in Europe, German state governments began courting Musk like a horde of real estate agents eying a very solvent potential customer.

"Lower Saxony," Bernd Althusmann (CDU), the economics minister of that state, wrote, "is one of the world's top regions in the automotive industry." He argued that "trans-European transport routes" cross through it and that the state is leading the way in terms of "electromobility, traffic telematics and autonomous driving." The minister, whose state is home to Volkswagen, said he would be pleased to explain all the advantages "in a personal conversation."

Berlin Economics Senator Ramona Pop of the Green Party wrote that the German capital city has "numerous test tracks for autonomous driving" and is the "German hotspot for international companies." Pop said she could offer help in formulating applications for subsidies and also proposed locations for the plant that "we would like to present to you personally."

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The Germans were practically stumbling over each other to lure Tesla. But Musk was tough -- and even played them all against each other. To this day, those involved don't know who their actual competitors were or even how many there were. The going estimate is that there were 30 applicants across Europe, but no one is certain whether that number is correct.

Brandenburg in eastern Germany was among them. The critical phase of negotiations began in July, with Brandenburg Economics Minister Jörg Steinbach of the center-left Social Democratic Party (SPD) speaking to Tesla by phone on average twice a week. Musk himself didn't take part in the negotiations. He was kept abreast of developments in negotiations at six-week intervals. He then decided on the final candidates for further negotiations.

High-Pressure Negotiations

Tesla also built up pressure with the speed of its negotiations, repeatedly flying in teams for a day or two at a time. Not a single delegation or representative of the German state traveled to the United States to negotiate with the company. Officials at Tesla also made it clear very early on that the talks were to be secret, with nothing leaking out.

At the beginning of September, Tesla reduced the number of finalists to 10, with several Tesla teams negotiating in parallel. Around two weeks later, 25 people representing Brandenburg participated in a workshop. Tesla people arrived for two days, with long checklists, inventories of their requirements and drawings. They also insisted on immediate answers -- not four weeks down the road.

Musk first made direct contact in a conference call with state Governor Dietmar Woidke (SPD) and Economics Minister Steinbach on the Wednesday before the decision was made. "He wanted to know who he was dealing with -- at least by voice," says Steinbach.

Tesla Chairman and CEO Elon Musk has long praised German engineers, but his company is also viewed with suspicion by automakers here, who have fallen behind in the electric car business.
Tesla/ UPI Photo/ imago images

Tesla Chairman and CEO Elon Musk has long praised German engineers, but his company is also viewed with suspicion by automakers here, who have fallen behind in the electric car business.

The first direct meeting with Musk was to take place that Tuesday in Berlin, but the appointment had only been made on the same day, such short notice that Woidke wasn't able to attend. Instead, Steinbach had an hour-long meeting with the Tesla CEO. Musk had already left by the time the economics minister signed the letter of intent. A representative signed on Musk's behalf instead.

What was that about? Was it meant as a power play or just a brilliant understatement?

The situation proved no less strange later that evening when Musk announced that the factory would be set up in Brandenburg during an awards show presented by Germany's Autobild magazine in Berlin. Musk spoke so quietly and bashfully that it almost seemed like a trivial matter. Germany, on the other hand, reacted almost identically to the award show's presenter: loud and almost hysterical. Indeed, it has topped the headlines since the announcement.

'A Milestone, an Early Christmas'

The political statements given in the ensuing hours all followed the same pattern -- great, great relief, almost as if Musk had suddenly shed Germany, a country whose future as a center of the automobile industry has been in question of late, of its despair. Politicians praised the development as "a milestone," an "early Christmas" and a "big opportunity."

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It was as if Musk's decision to build a single factory served as proof that Germany has not yet lost its standing as a great automobile nation, home to such globally loved automakers as Mercedes, BMW, Volkswagen and Audi. And yet, quite the opposite is true: Tesla's arrival here is a humiliation for the German car industry, whose most important executive, VW CEO Herbert Diess stood admiringly next to Musk at the awards ceremony as the American entrepreneur stole the show. "Thank you," Diess said. "Elon is the innovator who is driving us along."

But it's one thing to put on a show. Business is another thing entirely. Only a few hours before Musk's appearance at the awards, the American company had already sent an email to the government-owned investment bank for the state of Brandenburg -- Tesla's first application for government subsidies. In order for the state bankers to be able to examine the application, however, it has to be submitted in paper form. In Germany, exceptions aren't even made for Elon Musk. The application must also be approved by the European Commission, the European Union's executive branch.

The bank itself would not disclose the amount of the subsidies being sought by Musk. But if the Silicon Valley CEO's request was based on the amount that German industrial company Siemens was promised for opening an innovation campus in Berlin, taxpayers could be asked to pay for up to one-third of the costs of getting Tesla set up in Brandenburg. Indeed, subsidies for Tesla could potentially exceed 1 billion euros ($ 1.1 billion).

Flying High

Musk and the Germans seem to be nurturing a strange relationship that seesaws between admiration and wariness. In Germany, the Silicon Valley tech entrepreneur is admired for his drive, his genius and the fact that he just never seems to give up. After many years in which Tesla teetered on the verge of bankruptcy and in the wake of a revolt from shareholders in the spring, when much at the company seemed to have broken down, Musk and Tesla are flying high.

The mass-market Model 3, which Tesla almost failed to bring to the market, is now one of the best-selling electric cars in Germany. In countries where the electric car market is more mature, like Norway and the Netherlands, the Model 3 is even ahead of most popular combustion vehicles. And Tesla plans to release more products soon. Musk wants to present a new pick-up truck at the end of November, and production of the Model Y compact SUV is set to begin in the middle of next year, six months earlier than previously planned.

Meanwhile, in Shanghai, production is expected to begin in the coming weeks at a new Gigafactory Tesla built in just 168 days. That's not the only record being set, either. It will be the first car factory in China that doesn't involve a Chinese partner. Up to 250,000 cars are expected to roll off the assembly lines there each year, bringing Tesla to the forefront in the world's largest market for electric cars.

But Musk is also notorious for his pompous promises, and seems to constantly be walking the fine line between genius and megalomania. He has announced that his company SpaceX will offer trips to Mars starting in 2025, and has promised to bring fully autonomous vehicles to the market. The first date he set -- 2017 -- didn't work out, and his new forecast of 2020 also hardly seems realistic. So, just how credible is his pledge to build a large factory in Brandenburg -- in Germany, of all places, with its comparably high labor and energy costs?

What's interesting about Musk's lofty plans is that they can't be achieved without the Old Economy, without the classic art of engineering. To achieve his goals, Musk needs qualified mechanics and machinists to help him transform his futuristic ideas into mass-market products.

Tapping German Know-How

Germany has damned good engineers, Musk told DER SPIEGEL in an interview in 2014. He also announced a plan that nobody really took seriously at the time. Musk said he assumed that Tesla would build a battery factory in Germany at some point down the road -- in five or six years, according to his estimate. It turned out to be a pretty accurate prediction.

Since then, Musk has systematically gone about establishing a foothold in car-producing Germany, while also securing its expertise. In 2016, Tesla acquired Grohmann Engineering, a medium-sized company based in Prüm, Germany, that is a global leader in highly specialized automation technology, with customers like Bosch, BMW and Daimler. Musk made sure that Tesla Grohmann Automation, as the company is called today, now only supplies one company: Tesla.

For the mass production of his vehicles, Musk also headhunted German workers. His U.S. factory in Fremont, California, had fallen into a state of chaos. Musk wanted to do too much at one time and Tesla's highly automated production was not working as it was supposed to. He brought in Peter Hochholdinger, an ex-Audi executive, to turn things around. Hochholdinger spent three years at the company as head of production, where he simplified processes and increased production on the Model 3 to around 1,000 cars a day.

He has since taken a new job at the electric-car startup Lucid Motors. Other top staffers at Tesla have also left the company. Chief engineer Doug Field went to Apple. And recently, Jeffrey Brian Straubel, one of Musk's closest staffers, left the company.

Turnover in the company's management has been huge, in part because Musk often pushes his staff to the limit -- even to the point of harassment. He sends them text messages late into the night and expects immediate responses and quick action. Those affected are critical, saying that although the Tesla boss is pursuing a worthy mission, he still hasn't found the right way of treating his employees.

Is Tesla's End Game Approaching?

U.S. automotive journalist Edward Niedermeyer is also one of the company's most prominent critics. He's been writing about Musk's company for years and has incurred the wrath of many a Tesla fan. Their "flood of insults fills my email box and social-media channels," Niedermeyer said during an interview in his hometown of Portland. His book "Ludicrous: The Unvarnished Story of Tesla Motors," was recently published in the U.S.

Niedermeyer has been seeing signs for a long time that Tesla is "approaching the end game" -- i.e., the decisive moment that will determine whether the electric-car company reaches sustainable profitability or goes under and gets sold. He says Tesla's expansion to Germany and China "makes no sense at this point in time," and that manufacturing processes for the Model 3 are still suffering from birthing problems. He argues that they are still miles away from any enduring standard. In the automobile industry's over 100 years of history, "there have been thousands of companies that have disappeared again," Niedermeyer says. Most were forgotten because they never reached critical mass on the market.

In fact, that is the critical question -- and it's not one that can be answered easily. Tesla is already a huge player in the global electric-car market. If you look at the overall automobile market, though, the company is tiny. So, who's rolling into whose market here?

The Leaders of the Pack
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The Leaders of the Pack

It's a clash of two worlds, and even from today's vantage point, it is still too early to tell who will better master the technological distruption electric cars will bring: experienced major corporations like Volkswagen, whose strengths lie in mass production and quality, or newcomers like Tesla, who claim to have reinvented the car with alternative drives, powerful computers and advanced internet networking.

For a while, VW CEO Diess harbored the notion that the old and new car worlds could still possibly be melded -- on one side, world-market leader VW, with its expertise in hardware construction, and on the other, Tesla, with its superior software. Diess supposedly explored the possibility of partnering quite some time ago during meetings with Musk, with the possibility of the German company acquiring a stake in the California upstart. Ultimately, no deal came to fruition -- likely in part because of differences between the two companies and their leaders that still seem difficult to surmount.

Musk Seeks Equal Footing

Those still betting on his prospects for success say that Musk has changed, that he has learned that he has to be more serious in his public appearances. Colleagues who have worked closely with him at Tesla have also observed that Musk has become calmer. One could almost say he's become German. Meanwhile, thanks to a savings program, Tesla has built up financial reserves of over $5 billion.

And there's more to Musk's desire to sell "Made in Germany" Teslas than just some marketing gag. He wants to compete with established automakers on equal footing -- the very automakers that have been put under pressure by Tesla and are now copying many of the features that had previously been considered the Silicon Valley company's unique selling points. VW, for example, offered pre-orders on its new ID.3 electric car even before the company was able to present a finished vehicle to its customers.

Until recently, a move like that would have been heresy at Volkswagen. It's strongly reminiscent of Musk's way of doing business.

By Markus Brauck, Markus Dettmer, Simon Hage, Guido Mingels and Andreas Wassermann

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