Favoring US subsidies, Tesla pauses plans for German battery production

Despite having started expansion works for its Berlin factory, and already assembling battery components there, Tesla has announced it is pulling away from its initial building plans for the world’s biggest battery plant at its Grünheide factory in Berlin. Instead, it will refocus on local production in the United States because of subsidies. So the European cell plant is in the fridge.

The site in Berlin, which currently assembles around 3 000 Model Y cars per week, receives its battery packs from the Fremont site in Nevada. This was put forward as a temporary measure, scheduled for change by erecting the most extensive battery cell production line (50 GWhs a year) within the company adjacent to the factory. But On Wednesday, the Ministry of Economic Affairs in Germany declared that Tesla is walking away from this investment, worth 5 billion euros.

IRA does its job

The move is related to Biden’s protectionist Inflation Reduction Act, which demands that 40% of battery components be of North-American origin if buyers want to apply for a tax credit. Shortly, the component rate will even rise.

The official announcement of Tesla doesn’t beat about the bush: “The focus of Tesla’s cell production is currently in the United States due to the framework created by the United States Inflation Reduction Act (IRA).” A spokesperson added that the component production, exported to the US, is unaffected.

Last month, Tesla announced it would invest 3,6 billion dollars in its Nevada factory to ramp up production of its 4860 cells and output of the Cybertruck. However, the envisaged scale of 100 GWh a year has eclipsed the plans for the German site.

Building a dam

Struggling with an appropriate reaction to IRA, the European Union is considering loosening its grip on local incentives for battery production in its member states. Still, Tesla was offered a 1,14 billion euros in EU subsidy for erecting this cell factory – an incentive to build a dam against Chinese battery manufacturers – but turned this down for unknown reasons. At that time, the company said this decision wouldn’t break its plans.

The battery site in Berlin has been in a continuous on-off scenario. Dark clouds were already reported in September last year, with rumors even questioning whether the plans for a European battery plant would proceed. However, it seems this news wasn’t to be taken lightheartedly.

Also Northvolt

Tesla counters that the investment has been put on hold and has not been canceled. Moreover, Germany’s finance minister has already responded that Tesla’s decision wouldn’t affect any jobs in Grünheide. Still, Europe’s big auto nation struggles to control its local automotive manufacturing.

Swedish battery company Northvolt pulled a similar trick in November last year. It stated that it was delaying the construction of its Drei plant in Schleswig-Holstein due to high energy costs and said it was focusing on North-American expansion instead of Europe.

Tesla is also expected to make an announcement today of a move to its new engineering headquarters in California. The next episode in the love-hate relationship with the sunny state, where it all began for the company, would see Tesla upping its engagement again. Angry over corona measures, Elon Musk moved his company’s headquarters to Austin, Texas, two years ago. California is Tesla’s biggest market.