Humiliation from the US

Elon Musk’s plan to build a giant factory for electric cars in Berlin is an affront to German competitors. But it is good for Germany’s automotive industry.

For a long time, German carmakers have mocked Tesla and its boss Elon Musk, who is now building a giant factory in Berlin. What harm could this upstart, this dazzling figure who shows signs of megalomania time and again, possibly do to a successful industry? So manufacturers continued to produce gasoline engines and diesel engines, rejoicing over big profits without seeing any reason to change course toward electromobility. If someday history will be written about the great upheaval of the automobile industry, those missed years will be an important chapter.

Lately, since the diesel scandal and the ever-tightening EU regulations on carbon dioxide emissions which are necessary to reach climate targets, nobody is laughing anymore. Right now in Germany, there is a hectic rush to catch up on what has failed to happen. Electric cars and plug-in hybrids are coming onto the market in quick succession. Volkswagen is even rerouting completely by building its future strongly on electric battery cars. Nobody can tell if this strategy will work out. The only sure thing is that it will cost billions.

With Tesla, Elon Musk achieved two things: First, he showed that even without 100 years of experience it is possible to build functioning electric cars. Musk also realized that it is not enough to build the cars, you also need to provide an infrastructure for charging. Drivers of other electric cars have to make complicated plans as to where they can charge their cars during longer drives, all the time hoping that the charging station in mind will be unoccupied and functioning. Meanwhile, Tesla owners are happily standing beside their superchargers.

Electromobility Made Sexy

The second thing Musk achieved might be an even greater feat: He pulled electromobility away from the niche of tree-hugging pioneers and made it sexy. Among people with money—Teslas are expensive—driving a Tesla is regarded as sexy. This has only little to do with the quality of the cars, which is by no means outstanding. Teslas lag behind the standards of other high-end vehicles. Therefore, it is uncertain how much longer its cool image will last. So far, Tesla has not made any money with its cars. And judging by the number of cars it has produced, Tesla is still a niche manufacturer. In spite of all the ballyhoo, which Musk knows how to stage like no one else, it is uncertain if the pioneer from California will survive in the long run when the market is flooded by a wave of electric cars from well-established manufacturers or by a newcomer from China.

However, Musk’s announcement that he is building his first European “Tesla Gigafactory” in Berlin, where not only cars but also batteries will be produced, comes at an unfavorable time for German competitors, and is even somewhat humiliating. While German employees are anxious about savings plans and layoffs necessary to carry enormous investments into the future, Musk is coming up with a new factory. And politicians in the region are already dreaming about thousands of new jobs.

It is particularly displeasing that this factory is going to be built near the new Berlin airport, of all places, as the new airport is an embarrassing example of German engineering. Who knows if, in the end, Tesla’s Gigafactory won’t be finished faster than the airport?

Even so, the planned Tesla factory is good news for Germany’s automotive industry, not only because of the old economic principle of competition stimulating business. Electromobility is no longer about who makes the best and most beautiful cars. The crucial battle is being fought over battery cells. Whoever outpaces others in the development of the next generation of cells will belong to the group of winners. Tesla, working together with Panasonic in the production of cells, has had a head start. It remains unclear how big this advantage is, or if it still exists, because other manufacturers will not show their cards.

Because of immense costs and the big advance of Asian manufacturers, German manufacturers have avoided building up their own cell production. With that, they have given away the most important factor in the value chain of electric cars. In retrospect, this was a crucial mistake. It is not so much about employment, because cell factories are highly automated. The important thing would have been to participate in controlling the process of innovation. Meanwhile, new cooperation with Asian manufacturers has begun, and there are even plans for factories in Germany. If Tesla also joins now, prosperous competition around the cells of tomorrow could emerge in these parts, and in the end, it might benefit everyone.