Elon Musk picks Germany for new Tesla Gigafactory, says Brexit made UK 'too risky'

Elon Musk announced this week that Tesla will be building a Gigafatory in Berlin, contradicting previous hints that he would make the UK its manufacturing base in Europe.

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Elon Musk has fueled hopes that he would bring a Tesla R&D base, if not a factory, to the UK for years now, but it would seem that he has had a change of heart – and that Brexit had something to do with the u-turn.

As he collected an award for the Tesla Model 3 this week, the company's CEO announced that Tesla's new European Gigafactory, as well as an R&D base, will be built on the outskirts of Berlin in Germany. 

It was then reported that the Musk said that the UK wasn't considered for the new site because of Brexit: "Brexit made it too risky to put a Gigafactory in the UK," he said.

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In typical Musk style, he confirmed the decision by Tweeting "Giga Berlin", and he added that the new factory will build batteries, powertrains and vehicles, starting with the production of the Tesla Model Y.

"Some of the best cars in the world are made in Germany, everyone knows that German engineering is outstanding," said Musk. "That's part of the reason why we're locating our Gigafactory Europe in Germany."

The European plant will be Tesla's fourth battery plant. The first one, in Nevada, was launched in 2014; the second one is due in Buffalo, New York; and the third one, a $2 billion factory in Shanghai, is nearing commercial production. 

Currently, all of the company's vehicles are built at its factory in California, using batteries produced in Nevada. 

Tesla has a final assembly factory in Europe, in Tilburg, Netherlands, which produces Model S and Model X; but having a local production site on the continent is likely to further boost its European sales. Musk previously said that he would like the European facility to be operational by 2021.

Bringing a Tesla plant to Europe has been on Musk's mind for a few years now; until now, it seemed that the UK had been one of the CEO's locations of choice.

In 2014, speaking at the handover of the first right-hand drive Model S cars to British owners, Musk said that the UK would be the base for a new R&D center, and potentially a factory.

He said: "It makes sense to have (a factory) in the UK once we're producing more than 500,000 units… I'd say Model S is more European than American in design and handling. Most of the set-up work was done by British guys."

After the Brexit referendum in 2016, the company's CEO didn't backtrack. Speaking to The Telegraph, he said that he did not see Brexit being likely to have a "significant impact" on Tesla's long-term objectives

He added that he was still considering building a Tesla engineering group in Britain at some point, and praised British automotive engineering talent, and especially Formula 1.

David Bailey, who has researched the impact of Brexit on UK automotive at Birmingham Business School, told ZDNet that Musk's hints had fuelled hopes for some sort of R&D center or assembly point in the UK "if and when" Tesla chose to invest in Europe.

"Such hopes have been dashed with the decision by Tesla to invest big time in Germany," he said. "But in reality it comes as little surprise."

Like Musk, Bailey points the finger at "Brexit uncertainty", both short-term – "simply not knowing what will happen" – and long-term, as the UK could face tariff barriers and customs delays that would make the country a much less attractive place to make cars.

Brexit has stymied investment in the auto industry, Bailey argued, which is down by over 80% in the last three years. 

In addition to Brexit, Bailey highlighted that another factor could have influenced Musk's decision. "The UK is lagging behind other European countries in EV take up," he said.

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Recent research showed that only one in four people in the UK would consider buying an electric car in the next five years, partly because the government recently cut subsidies for buying greener cars and reduced discounts on all-electric cars from £4,500 to £3,500.

"In contrast the German government is committing big support for EV in the coming years," said Bailey.

"Musk looked at where the big action and investment is taking place and concluded that it isn't in the UK, sadly," he continued.

The timing is unfortunate for UK Prime Minister Boris Johnson, who in a twist of fate chose an electric car factory in the West Midlands for his first major speech of the election campaign today.