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

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

Last week, Tesla announced that it would build a new Gigafactory – Tesla's term for a rather grand period for a car facility – near Berlin.

That would bring the Tesla Gigafactory count to four, with facilities in Nevada, New York, China, and now Germany. Not all of these plants are explicitly designed for vehicle assembly, but they can be if needed. By rain, this means that Tesla has committed to building more factories than any other established car manufacturer in the world.

Tesla can offer some industrial logic for a plant in Shanghai, given that China is likely to be the world's best growth market for fully electric vehicles and that Western car companies prefer to build vehicles where they sell them.

But Europe is a completely different story.

Capacity utilization in the automotive production sector is in the region of 80%, a built-in structural problem that industry executives have been worried about for a decade (late Fiat Chrysler Automobiles CEO Sergio Marchionne made much of the case in a much-debated 201

5 presentation, unsubstantiated the title "Confessions of a Capital Junkie".

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

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Thomson Reuters

The European car market is large and mature, and there is probably not much growth to look forward to. A wildcard is a transition to electrification, driven by increasing emissions from the government and fuel economy standards and problems with diesel engines in the wake of Volkswagen's cheating scandal.

However, electric cars will not solve the problem of overcapacity. Europe could abandon combustion completely and still have … 20% of its car factories operating below full levels.

Enter Tesla. CEO Elon Musk was in Germany last week to attend the annual Golden Steering Wheel awards presented by Business Insider's fellow Axel Springer publication, Auto Bild. Never one to miss an opportunity to keep Tesla enthusiasm high, Musk gave the German audience what they wanted and announced the Berlin Gigafactory.

Car production is somewhat variable; There are operating factories in the world that have been around since the early 1900s. Tesla's main assembly plant, in Northern California, was opened in the 1960s (Tesla bought it after the financial crisis). But for the most part, car production in the 21st century outside of tailored operations for expensive exotic cars is a rebuilt process.

Musk has repeatedly suggested reinventing this situation by creating highly automated factories, but Tesla had discontinued exactly the opposite: improvised outdoor assembly lines in California and a higher indoor staff than Fremont had when it was a common General Motors-Toyota- plant in the 1980s.

Maybe Giga Berlin could fix this, but it really won't solve the general problem of overcapacity. The bottom line is that Europe does not need more car systems.

What is Musk's motive? It's mysterious …

  tesla factory

Tesla California factory.

In this context, it is mysterious, not to mention mystifying, that Musk wants to build a new factory. There are many plants that European carmakers would be happy to sell him for a song, and there are also contract manufacturers – such as Austria's Magna – who could start installing Tesla cars faster than Tesla could construct and brand new plants. [19659002] It is worth noting that although Tesla's ambitions sound good, these new Gigafactories are all billions of billions – and Tesla assumes them with borrowed 2019 money. If they are in operation for 30 years, inflation should take care of the debt burden. But much of the competition built their plants with money collected decades ago. And some of these factories are planned to close or run well at full capacity. Ford reduces its European footprint to 18 from 23 plants and reduces shifts.

This should represent a happy hunting ground for Tesla, and Musk can still buy rather than build. But constructing something shiny and new sounds sexier.

Beyond the European problem of overcapacity, any new Tesla plant is likely to reproduce, depressing, the Tesla bungling approach to car mounting. In a time when all other major automakers have adopted an industry-standard "lean" production model, pioneered and refined by Toyota in the 1970s and 1980s, Tesla continues to operate more like GM in the 1950s (or with its improvised assembly line, The Ford of the 1910s.

Musk's cult for "production hell"

  Elon Musk

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

The production is quite compelling; Tesla makes a nice car. But Musk has also created a cult of "production hell" that simply confuses industry professionals accustomed to vehicles that unknowingly move from launch to production in a year or two. Germany, an industrial power plant, is particularly good at this, so Musk parachutes with their uneven ideas might not go so well.

But honestly, he shouldn't care. Or maybe he should, if the overall goal is to keep the Tesla story fresh (it is). Tesla already has a kind of factory in Europe, located in the Netherlands, but it is a final assembly hub that completes vehicles shipped from the United States. A soup-to-nut factory in Europe's industrial heartland is a much more compelling plot point.

Musk deserves his reputation for genius in many ways. He is by far the biggest living car salesman, a setback for the company's giants: Henry Ford, Enzo Ferrari, William Durant. But when it comes to blocking and coping, his genius is useless. He overcomplicates and reliably selects the hard way when the simple way stares him in the face.

The summary is useful drama. But as Tesla gets bigger, the routine gets old. And if he really wants to sell more cars in Europe, there are far easier ways to do that than building a factory the continent doesn't need.

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