(Bloomberg Opinion) – Elon Musk's announcement that Tesla Inc. will build a factory and research center near Berlin makes perfect sense as a loud statement. Berlin is not known as a car city, but it has an energetic technical scene, and Tesla is not so much a car company as a technological one. But it is also reasonable from other points of view.
That the new factory should be in Germany is logical. Germany is Europe's largest electric car market and has the greatest potential. Germany is Europe's most populous country, Germans are in love with cars and concerned about the environment, as evidenced by the recent election successes of the Greens.
It also means that Germany is a country with some of Europe's strongest incentives for electric car buyers. Recently, it decided to increase the maximum grant for battery vehicle buyers to 6,000 euros ($ 6,600) from 4,000 euros and extend it to 2025. France, Italy and Slovenia offer about the same amount.
Musk's move could be seen as a raucous trip inland to the best competitors. Volkswagen AG has launched a complete electrification strategy that pits it directly against Musk's hopes for the mass market, Model 3 (which apparently won't be made at the new Berlin plant, at least initially). In September, the German giant launched ID.3, the first car on its new platform intended for electric vehicles. Berlin is flooded with electric golf that VW made available this year for WeShare, the company's forward-thinking car-sharing operation. And even before VW starts to turn tens of thousands of cars specifically developed as EVs, e-Golf is already among Model 3's strong competitors in Germany, along with Bayerische Motorenwerke AG's somewhat clunkier i3 and some other European electric cars.
But then it makes sense to keep a close eye on the competition, work with the same suppliers and be able to tap star managers, engineers and designers. Tesla is not the rude challenger here – German carmakers are in terms of EVs. Musk in a way buys insurance against being technologically overtaken. This may even justify the big difference in workers' wages: While the average California Tesla assembly worker earns $ 18 an hour, the lowest-paid German car worker earns about $ 27 an hour, almost $ 30.
There's also something symbolism of Tesla's move to Berlin in particular. The capital was the first German site for Ford, which began mounting Model T's in 1926, without fearing competition from German automakers who were slower to move to mass production.
And yet Berlin and its surroundings are not obvious places for a car industry operation. Although BMW makes motorcycles in Berlin, Daimler AG has production sites both inside and outside the city, and VW has a design center in Potsdam, but most of Germany's car production, engineering and design takes place elsewhere.
Instead, Berlin has a thriving startup culture. According to Deutscher Startup Monitor, 16% of Germany's start-up companies are located in Berlin. Only the country's most populous state, North Rhine-Westphalia, has a larger share. And when it comes to the number of technicians, Berlin has more of them per 100,000 population than any German state except Hamburg and Hesse. Without doubt, the German capital ranks as a European technical hub only number two for London and possibly Paris. Musk said Brexit excluded Britain as a potential location, and France has such restrictive labor laws that it's hard to imagine Tesla opening a 10,000-position operation there when there are other choices.
"Berlin rock," Musk said as he announced Tesla's plans.
On the other hand, it can be argued that the heart of the automotive industry is shifting eastward, and that it does not stray too far from Berlin in the near future. Zwickau in Saxony, a three hour drive from the capital, is where VW has started production of ID.3. Saxony is a growing hub for the automotive industry that includes BMW and Porsche factories; IG Metall, the trade union that represents many car workers, counts Saxony as part of the same area as Berlin and Brandenburg.
In other words, Musk's choice of Tesla's next production and development site, although an impetus to take on Tesla's deep-pocketed German challengers on the home field has played an obvious role.
To contact the author of this story: Leonid Bershidsky at email@example.com
To contact the editor responsible for this story: Jonathan Landman at firstname.lastname@example.org
This column does not necessarily reflect meaning from the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is the Bloomberg Opinion's Europe columnist. He was the founder of the Russian business newspaper Vedomosti and founded the opinion website Slon.ru.
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