Tesla's (TSLA) Berlin Gigafactory Rolls Out German-Made Model Y

Tesla strengthens its presence in Europe with Giga Berlin

The spotlight turned to Grünheide, Brandenburg, near Berlin on March 22, 2022, where Tesla, Inc. (TSLA) debuted the first of its Model Y cars made in Germany (MIG Model Y) at Gigafactory Berlin, or Giga Berlin.

The high-profile event was attended by the German political who's who, including German Chancellor Olaf Scholz, as well as Tesla CEO Elon Musk, who was there to hand over the first cars to customers.

Key Takeaways

  • Tesla's Gigafactory in Berlin is open after delays on environmental concerns.
  • The plant will produce 500,000 cars per year when it reaches full capacity.
  • With Giga Berlin, Tesla is in a key position to face European competitors, such as Volkswagen AG.

Delays and Conditional Approval

The Berlin plant, set to launch in summer 2021, was delayed due to concerns about its impact on the environment. It was conditionally approved on March 4, and the plant facilities had to pass numerous tests, especially to prove compliance with environmental mandates for water use and air pollution.

Production in Germany will allow Tesla to reduce its costs while also filling customers' orders faster. Tesla may be following the earlier success of the makers of Japanese internal-combustion cars, such as Toyota Motor Corporation (TM) and Honda Motor Company (HMC), which opened manufacturing plants in the United States and other countries to gain market share.

The European EV Market

Tesla faces stiff competition from the bellwether European car manufacturer Volkswagen AG (VWAGY), whose foray in electric vehicle (EV) manufacturing has given it a large share of electric EV sales in Europe, even though it trails Tesla. Tesla's new battery plant with 50 gigawatt hours (Gwh) capacity will outstrip its European competitors when it reaches volume production at the end of 2023. For now, the made-in-Germany cars will be fitted with batteries from China. Tesla's Berlin plant is expected to start out immediately with 500 cars per week and, by the end of April, ramp up to 1,000. China will supply the 2170 battery for Tesla's cars until the more energy-efficient 4680 is available in Berlin.

Giga Berlin Critical to Stock Upside

At full capacity, the assembly plant and the battery factory are expected to make 500,000 EVs and 50 Gwh of battery power per year. Both Musk and analysts following the company believe that it will be a while before the Berlin factory reaches full capacity. Nonetheless, the Berlin launch is a bullish event for Tesla, according to Wedbush analyst Dan Ives, and its launch clears the path to Ives' $1,400 price target for the stock. According to Ives, the regulatory victory and the actual launch in Berlin will position Tesla at an advantage and allow it to drive European sales from within Europe rather than from its Gigafactory Shanghai in China.

Tesla shares have rallied in anticipation of the opening of the Berlin plant and were changing hands on March 23 at $1,010.82—below Ives' target.

The Bottom Line

Giga Berlin offers production capacity and battery technology that could allow Tesla to race ahead of its competitors in Europe. While reaching full capacity is still be a while away, the factory will be a crucial catalyst to Tesla's increasing presence in the European EV market.

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