Elon Musk announced via twitter that Tesla is considering Germany to build its Gigafactory in Europe.
Germany is a leading choice for Europe. Perhaps on the German-French border makes sense, near the Benelux countries
— Elon Musk (@elonmusk) June 19, 2018
But why Germany?
Tesla is spoiled with options in Europe. Why not United Kingdom? – the world’s sixth largest auto market. How about Norway? – a country that couldn’t get enough of Tesla. Why not Netherlands? -Tesla’s EU headquarters.
How did Germany come out on top? Tesla’s performance in Germany can be best termed as struggling, as the electric car maker sold just 3,332 cars in 2017. I covered that in detail in my earlier article titled Why Tesla is Struggling in the Lions Den (Germany) and also made my case for building a factory in the country.
The reason is fairly straightforward – Market Potential
Take a look at the world’s top ten auto markets.
Germany not only has the numerical advantage but also has a strong geographical advantage. It may not be at the perfect center of Europe but it comes close.
U.K shot itself in the foot with Brexit and Gigafactory in U.K would mean cars will have to do a truck – train/ship – truck hop to reach other parts of Europe. A geographical disadvantage.
Germany has none of that. You can reach all over Europe by land or rail, except for Ireland and U.K and may be Finland. Even Moscow is just a day’s drive from Frankfurt, Germany.
Germany is also the most powerful nation in the European Union.
And more important than the geographical advantage is the size of German auto market, which is the fourth largest in the world and number one in Europe. In 2017, 3.4 million cars were registered in Germany.
2017 Sales (Germany)
Mercedes Benz: 326,188
Audi: 283,196
BMW: 261,864
If Tesla does not win Germany, it will never be a truly number one player, because that would mean the German triumvirate – BMW, Mercedes Benz and Audi(VW) have found a way to keep Tesla at bay.
But the problem in winning Germany is not so straightforward. The auto industry is one of the largest industries in Germany with a turnover of Euro 423 billion in 2017, accounting for 20% of total German industry revenue and employing nearly a million.
Germans are proud of their auto industry and if Tesla keeps exporting to Germany while hurting the workforce, it will only make things easy for competitors to turn local sentiment against the “US” company.
But if Tesla starts building its cars in Germany and make Germany a part of its identity – like how Germany based Grohmann Automation is playing a vital role in helping Model 3 ramp up, then Tesla can earn the respect on the ground.
And let’s not forget the talent Germany brings to the table. That’s why Germany is a no-brainer for Tesla’s Gigafactory in Europe. The earlier the better.
Netherlands, France and other EU countries still have a chance to pull Tesla towards them, but it really depends on how big their offer letter is.
