Tesla’s German Gigafactory faces local hurdles as it nears completion

Electric carmaker Tesla is clearing the final hurdles to get its massive German “Gigafactory” up and running in the new year.

The Berlin-Brandenburg plant has been in development for over two years and although the investment and jobs boost has been praised by many, including the mayor of the nearby town Gründheide, its construction has been impacted by several local disputes and oppositions.

The latest hurdle, as reported by regional outlet RBB24, involves a dispute over a water pumping facility in the region where the Gigafactory is located could have knock-on effects for the factory’s operations.

A hearing on the matter was due to take place in the administrative court in Frankfurt (Oder) earlier this month but was postponed. The case relates to action taken by environmental groups against local authorities over the supply of water in the region, which would include pumping water to Tesla’s facility. It is expected to consume large quantities of water annually, which has drawn concern from some environmental groups.

Tesla did not respond to CNBC’s request for comment.

It’s the latest development in a long winding saga for Tesla and its high-profile CEO Elon Musk — and getting the German facility fully operational is a vital component in Tesla’s future.

“Berlin is a linchpin to Tesla’s broadening capacity plans for 2022 and beyond,” Dan Ives, managing director at Wedbush Securities, told CNBC.

“The red tape has been enormous for Tesla to get through and it’s key that the factory is producing cars by early January.”

Tesla announced plans for the Gigafactory near Berlin — its first in Europe — in late 2019, arriving on the doorstep of Germany’s traditional auto industry giants like Volkswagen and Daimler.

Despite the disruptions of the pandemic, Tesla moved ahead with construction quickly, but from the moment the first brick was laid, it has faced local challenges and red tape. Most recently, plans to expand the remit of the facility to include battery cell production have drawn some criticism.

During the summer, an internal report warned of potential accident risks at the facility. Meanwhile, the company was fined by local environmental authorities for construction violations.

The factory has received much support as a boon for the local economy and jobs, however, with up to 40,000 jobs tipped to be created over the coming years. The mayor of the town of Gründheide previously called it a “once-in-a-lifetime chance” to stimulate the local economy.

Ross Gerber, CEO of Gerber Kawasaki, an investor in Tesla, told CNBC that he is not too concerned with the hurdles it has faced. “It’s not a big concern in the sense of we know that the factory will open soon,” he said.

“We’re extremely bullish on the European markets and we’re seeing a lot of demand for Tesla.”

However, some have voiced concerns over its potential environmental effects too, with the water supply issue being a frequent bugbear. In October, Musk brushed off the question, saying there are plenty of water supplies in the region.

In its annual impact report for 2020, Tesla said that the new facility in Germany as well as its site in Texas will result in “further reductions in our water usage per vehicle,” but acknowledged that water supply is a challenge due to climate change.

“Water is becoming increasingly scarce as the climate changes. That is why we are reducing our water usage throughout our operations as much as possible,” the report said.

Elsewhere, Tesla has faced court action over the number of trees being cut down around the German construction site, while environmentalists expressed concern over the impact on native wildlife like sand lizards.

“I think they underestimated the painstaking bureaucracy that they would encounter in trying to build out its Berlin footprint. They didn’t expect to spend three months talking about cutting down trees,” Ives said.

The impact of the German factory will be gradual but significant, according to Pedro Pacheco, an automotive analyst at Gartner.

“I think the most immediate difference is capacity in the sense that Tesla will have more available capacity from a manufacturing perspective, there will be less lead time for customers in Europe because they don’t need to wait for vehicles that come all the way from China,” he said.

Should Tesla develop new models designed with the European market in mind, the Berlin facility would be “crucial” to those efforts, he added.

“Germany is one of the main automotive powers in the world and definitely the main one in Europe so therefore if you want to tap into talent in Europe, you have to come to Germany.”

The hunt for automotive and tech talent for the factory will be intense, as rivals like Volkswagen march on with their own EV production plans in Wolfsburg.

Another problem looming is the world’s ongoing supply chain disruptions and the shortage of microchips, which has hit the wider automotive industry hard.

Gerber told CNBC he believes the carmaker has weathered the chip shortage crisis relatively well, but that it will continue to be felt by industries for at least the first quarter of 2022.

“I still think it’s going to be a challenge in the first quarter of next year but I do think this stuff works itself out as we get into next year,” Gerber said. “I think it’s an issue that will alleviate itself over the next 12 months.”