Should Tesla have built its gigantic European factory in the UK rather than in Germany?
Tesla’s plans to start manufacturing cars in Germany don’t appear to be progressing as well as hoped. Elon Musk spoke out against the German bureaucracy, which delayed the opening of the Berlin Gigafactory. Now he has given up on a huge European grant. The latter’s reasons aren’t so much a matter of bureaucracy, but they raise the question of whether Musk made the right choice in opting for Germany as Tesla’s main European base.
After all, Germany was not the only option on the table. There were rumors last year that Elon Musk was in talks with the UK government to open a Gigafactory in Somerset, UK. A few years ago, the UK was a prime manufacturing location for non-European car brands because it had direct access to the EU market but more flexible labor laws. Several Japanese manufacturers, including Toyota, are said to have built their manufacturing in the UK for this reason. The country was even nicknamed the “Japanese aircraft carrier floating off the coast of Europe” in 1992 by Jacques Calvet, then at the head of the PSA group, French carmaker at the time the largest industrial company in the country (and now integrated with Stellantis). Unfortunately, Brexit has reduced the usefulness of the UK in this regard, so only the reduced paperwork at the manufacturing stage remains. There is now a lot more bureaucracy when it comes to doing business with the EU from the UK, and this would have been a major factor in Honda closing its Swindon plant after 35 years.
Officially, bureaucracy isn’t the reason Tesla gave up the EU money offered to him, although you can bet there would have been a lot of hurdles to overcome to get it. Musk said he turned down the EU’s $ 1.28 billion in funding for the Berlin Gigafactory because âTesla has always been of the view that all subsidies should be eliminated. But that must include massive subsidies for oil and gas. For some reason governments don’t want to do this … “
You should always take such statements from Musk with a pinch of salt, especially given his labor relations record, which is not as benevolent as his environmental message. However, he has a point about subsidies. There are a lot of complaints about government support for electric vehicles and green energy, but the oil and gas industry has also not been exempt from monetary incentives over the years. Activist group Paid to Pollute claims the UK has provided nearly Â£ 14bn ($ 18.7bn) in oil and gas subsidies since 2016 alone. In the United States, the figure is higher every year, with an Oil Change International report in 2017 putting the US total at $ 20.5 billion per year.
There is also more to attracting business than just a hassle-free workforce, bribes and free trade agreements. The UK has many other opportunities in the new world of electric vehicles. Start-up Britishvolt launched UK’s first battery Gigaplant in August, a Â£ 2.6bn ($ 3.5bn) project that aims to create 8,000 new jobs and manufacture 30 GWh of batteries from 2027, enough for 300,000 electric vehicles per year. The UK also has its own supplies of lithium, a key component of most rechargeable batteries, which Cornish Lithium and British Lithium hope to tap into. This is both mining and brine, lithium-rich geothermal groundwater. These companies even claim that there will be enough local lithium to electrify the entire UK car fleet. Electric hypercar builder Rimac also has its design office in the UK, due to the talent available in the country.
Tesla needs to think about where it produces cars for the right-hand drive market. This not only includes UK, but also Japan, South Africa (plus several adjacent countries), Australia, New Zealand and (the bigger ones) India, Indonesia, Pakistan and Bangladesh. Malaysia and Thailand also drive on the left. In fact, the sum of the drivers on the right is 2.8 billion people, or 36% of the world’s population.
At present, Tesla cars entering the UK are made in China, which ironically is seen as an improvement in quality over those made in America. The Chinese Models 3 now also come with LFP batteries, which are cheaper, more tolerant to being 100% charged and do not contain cobalt, so are free from the moral issues of mining this mineral. But even though China is a profitable place to produce cars, transporting them around the world is hardly good for the environment.
Tesla will almost certainly sort out his problems in Germany sometime in 2022. But you have to wonder if Elon Musk sees this as a rather bitter pill in the face of the bureaucracy he faced in setting up the Gigafactory in Berlin. Even when the factory opens, this should continue, given the past history in Europe. Perhaps, as the EV market continues to grow, local manufacturing in the UK could end up on the table. Brexit or no Brexit, the UK ultimately remains a very lucrative car market.