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Home / Business / Elon Musk's plan to build a new Tesla factory in Germany makes no sense

Elon Musk's plan to build a new Tesla factory in Germany makes no sense



Last week, Tesla announced that it would build a new Gigafactory – Tesla's name for a pretty grandiose name for a car factory – near Berlin's York State, China and now Germany. Not all of these systems are explicitly intended for vehicle assembly, but they can be used as needed. This means that Tesla has committed to building more factories than any other established automaker in the world.

Tesla could offer an industrial logic for a plant in Shanghai, as China is probably the world's best growth market for all-electric vehicles, and western automakers prefer to build vehicles where they sell them.

But Europe is a whole different story.

Capacity utilization in the automotive industry is below 80%. This is a structural issue industry leaders have been worried about for a decade (the late Fiat Chrysler Automobiles) CEO Sergio Marchionne made a big deal of it in a much-discussed presentation entitled "Confessions of a Capital Junk" (201

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A mature market with limited future growth and too many underutilized factories

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Thomson Reuters


The European car market is big and mature, and there's probably not much growth to look forward to. A wildcard is a shift to electrification fueled by rising government emissions and fuel economy standards as well as problems with diesel engines following the Volkswagen scam scandal.

Electric cars, however, do not really solve the overcapacity problem. Europe could completely do without incineration and still … 20% of its car factories work under full load.

Enter Tesla. CEO Elon Musk was in Germany last week to attend the annual Golden Steering Wheel Awards, presented by Business Insiders Axel Springer colleague Auto Bild. Musk did not miss the opportunity to uphold Tesla's enthusiasm. He gave the German audience what they wanted and announced the Berlin Gigafactory. There have been operational factories in the world since the early 20th century. Tesla's Northern California assembly plant opened in the 1960s (Tesla bought it after the financial crisis). But in the 21st century, car manufacturing outside of tailor-made processes for expensive, exotic cars is largely an ordinary process.

Musk has repeatedly suggested reinventing this situation by creating highly automated factories. However, Tesla had achieved just the opposite: impromptu outdoor assembly lines in California and a higher number of indoor staff than Fremont when it was a joint General Motors Toyota plant in the 1980s.

Perhaps Giga Berlin could correct this, but that would not really solve the general overcapacity problem. The bottom line is that Europe no longer needs car factories.

Which motive does Musk have? It's mysterious …

  Tesla Factory

Tesla factory in California.
Tesla


In this context, it is mysterious, if not mysterious, that Musk wants to build a new factory. There are many works that European automakers would like to sell for a song, and there are also contract manufacturers like the Austrian Magna who could assemble Tesla vehicles faster than Tesla could and a brand new system.

] It's worth noting that while Tesla's ambitions sound great, these new gigafactories are all billions of dollars worth of projects – and Tesla will provide them with borrowed money for 2019. If they're operational for 30 years, inflation should go up take care of the debt burden. But much of the competition built its assets with money that was collected decades ago. And some of these factories are either nearing closure or far below full capacity. Ford reduces its European footprint to 18 out of 23 plants and reduces layers.

This should be a happy hunting ground for Tesla, and Musk could still buy instead of build. But obviously it sounds sexy to construct something shiny and new.

Apart from the issue of overcapacity in Europe, any new Tesla factory is likely to repeat Tesla's depressive approach to automatic assembly. At a time when every other major automaker adopted an industry-standard "lean" manufacturing model developed and developed by Toyota in the 1970s and 1980s, Tesla continues to work like the GM of the 1950s (or Ford's improvised assembly line) the 1910s).

Musk cult of the "production hell"

  Elon Musk

Musk makes everything hard.
David McNew / AFP / Getty Images


The output is quite convincing; Tesla makes a nice car. But Musk has also created a cult of "production hell" that baffles professionals accustomed to bringing vehicles from production to production in one or two years without incident. Germany, an industrial power plant, is particularly good at it, so that musk, who jumps in with his crazy ideas, may not do well.

But honestly, he should not worry about it. Or maybe he should, if his ultimate goal is to keep the Tesla story up to date. Tesla already has a kind of factory in Europe in the Netherlands, but it is a final assembly hub that completes vehicles that are shipped from the US. A soup-to-nut factory in Europe's industrial heartland is a much more compelling action.

In many ways Musk deserves his reputation as a genius. He is by far the largest living car salesman, a step backwards to the giants of the business: Henry Ford, Enzo Ferrari, William Durant. But when it comes to blocking and attacking, his genius is useless. He is always over complicated and chooses the hard way reliably when the easy way looks him in the face.

The result is a useful drama. But when Tesla gets bigger, the routine gets old. And if he really wants to sell more cars in Europe, there are much easier options than to build a factory that the continent does not need.


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