Tesla Cuts German Battery Production Because Of US Tax Incentives

Feb. 25, 2023 5:22 PM ET by Jay Traugott Industry News / Comments

The Inflation Reduction Act's incentives were too good to pass up.

Tesla has confirmed that even though it has already begun building battery systems at its new Gigafactory outside of Berlin, Germany, it will focus cell production in the US because of attractive tax incentives offered by the Inflation Reduction Act. Per Reuters, a spokesperson for the EV automaker confirmed that "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)."

The German Gigafactory, which builds the Model 3 and Model Y for the European market, will soon begin manufacturing cell components like electrodes, and some will be exported to the US. German-built Teslas will have locally assembled batteries in the "near future."

Tesla

Still, German and EU leaders ideally want to see more Tesla manufacturing happening locally, including batteries but the IRA incentives are simply too good to ignore.

EU leaders have for months been concerned about the bill's $369 billion worth of subsidies that entice companies like Tesla to shift production out of Europe to the US. To counter this, the EU Commission is now considering new rules to allow for greater financial aid in areas such as renewable energy and zero-emissions vehicles.

Germany, however, stresses it's important not to offer too many subsidies in responding to the IRA. For now, Tesla's efforts to prioritize battery production in the US will not impact jobs at the German Gigafactory, which continues to struggle with output to meet growing demand.

Tesla

Tesla CEO Elon Musk recently said that the German battery plant is expected to reach volume production by the end of this year, though some doubt this is achievable. Tesla, in general, has struggled in recent months to meet vehicle production demand at multiple factories, including the Fremont, California, and Austin, Texas, facilities.

EU leaders have complained for months that the IRA's incentives are unfair, especially since American-made vehicles qualify for European EV subsidies.

But companies like Tesla want to reduce costs as much as possible and will keep adapting accordingly.