Last week, Tesla announced that it would build a new Gigafactory – the Tesla term for a rather high-tech term for a car factory – near Berlin.
That would bring the number of Tesla Gigafactory to four, with facilities in Nevada, New York state, China, and now Germany. Not all of these factories are explicit for vehicle assembly, but they can if needed. Taking this into account, this means that Tesla is committed to building more factories than any other car maker in the world.
Tesla can offer some industrial logic to factories in Shanghai, given that China is likely to be the best growth market in the world for electric vehicles and Western car companies prefer to build vehicles where they sell them.
But Europe is a far different story.
Capacity utilization in the car-manufacturing sector is in the low-80% range, embedded structural problems that have worried business leaders in the industry for a decade (the late Fiat Chrysler Automobiles CEO Sergio Marchionne made big problems out of the problems in the 2015 presentation much debated by not being debated. legitimately titled "Confession of the Capital of Junkie").
A mature market with limited future growth and too many underutilized factories
The European car market is large and mature, and may not have much growth to look forward to. Wildcard is a transition to electrification, driven by rising government emissions and fuel economy standards and problems with diesel engines after the Volkswagen fraud scandal.
Electric cars will not really solve the problem of overcapacity. Europe can abandon internal combustion completely and still have … 20% of its automobile factories are operating below full levels.
Enter Tesla. CEO Elon Musk was in Germany last week to attend the annual Golden Steering Wheel award shared by Business Insider's public relations partner, Axel Springer, Auto Bild. Nobody missed an opportunity to keep Tesla's enthusiasm high, Musk gave the German audience what he wanted and announced the Berlin Gigafactory.
Car manufacturing varies somewhat; there are operational factories in the world that have existed since the beginning of the 20th century. Tesla's main assembly plant, in Northern California, opened in the 1960s (Tesla bought it after the financial crisis). But for the most part, automaking in the 21st century outside of bespoke operations for expensive exotic cars is a commodified process.
Musk has repeatedly suggested rediscovering this situation by creating highly automated factories, but Tesla is completely opposed to it: an improvised outdoor assembly line in California and a higher number of employees indoors than Fremont had at the time was a joint General Motors-Toyota factory in the 1980s.
Maybe Giga Berlin can fix this, but it really won't solve the problem of overcapacity in general. The point is that Europe does not need more car factories.
What is Musk's motive? That's mysterious …
In this context, it's mysterious, if not said to be confusing, that Musk wants to build a new factory. There are many factories that European car makers will be happy to sell, for a song, and there are also contract manufacturers – such as Austria Magna – who can start to assemble Tesla vehicles faster than Tesla can build and completely new facilities.
It should be noted that while Tesla's ambitions sound great, these new Gigafactories are all multibillion-dollar proposals – and Tesla does so by borrowing money in 2019. If they operate for 30 years, inflation must overcome the debt burden. But most of the competition builds its factories with money collected decades ago. And some of the factories will be closed or operating at full capacity. Ford reduced its European footprint to 18 from 23 factories and reduced shifts.
This should be a fun hunting ground for Tesla, and Musk might still buy rather than build. But clearly, building something shiny and new sounds sexier.
Beyond the problem of European overcapacity, every new Tesla plant is likely to emulate, sadly, Tesla's careless approach to automatic assembly. At a time when every other major carmaker had adopted an industry standard "lean" manufacturing model, spearheaded and refined by Toyota in the 1970s and 1980s, Tesla continued to operate more like GM in the 1950s (or, with improvised assembly lines , Ford in the 1910s).
Musk sect about "hell of production"
David McNew / AFP / Getty ImagesThe output is quite interesting; Tesla makes a good car. But Musk has also created a "production hell" sect that only confuses industry professionals who are accustomed to vehicles that move smoothly from launch to production in a year or two. Germany, an industrial powerhouse, is very good at this, so Musk is parachuting with his many ideas that might not discuss all that well.
But honestly, he shouldn't bother. Or maybe he should, if the main goal is to keep Tesla's story fresh. Tesla already has a kind of factory in Europe, located in the Netherlands, but is the center of the final assembly, completing vehicles sent from the US. A soup-to-bean factory in the heart of European industry is a far more interesting plot point.
In many ways, Musk deserved his reputation as a genius. He is by far the largest living car seller, which is a setback for business giants: Henry Ford, Enzo Ferrari, William Durant. But when it comes to things that hinder and overcome, his genius is useless. He constantly complicated and reliably chose the difficult path when the easy way to look at his face.
The result is a useful drama. But as Tesla grows, the routine gets old. And if he really wants to sell more cars in Europe, there are many easier ways to do this than building factories that the continent doesn't need.