Legacy manufacturers should be very afraid.
Tesla won a massive victory in Germany last week as its new Gigafactory in Berlin was granted the go-ahead to start mass production.
Various hiccups held up Tesla's first Gigafactory in Europe since construction started in 2019. First, Tesla forgot to pay its water bill, and then locals started expressing environmental concerns about the new factory, built on the outskirts of Berlin in the municipality of Grunheide.
Tesla initially thought its troubles were over in October 2021, even going as far as throwing a big party to celebrate the start of production. Unfortunately, the environmentalists were not done, and it delayed production once again.
Then on March 4, 2022, Tesla finally received the go-ahead to start mass production of the Model Y. To date, Tesla was permitted to build only 2,000 units using temporary permits.
Tesla's woes are not over yet. Environmental NGOs are rumored to be angry about the ruling and will likely still want to duke it out in German courts.
The Germans are not making it easy for Tesla, however. The final permit is 537 pages long, and it includes thousands of pages of appendices. No matter, for now, Tesla can go head-to-head with the Germans on their turf.
The American brand was the catalyst that forced the rest of the world to go electric, and it's still the number one choice amongst consumers. The Model 3 was the best-selling EV in Germany last year, even though there's no shortage of EVs on sale over there.
You'd think the Germans would support Volkswagen and its new range of products that include the ID.3 and ID.4, but no. Patriotism will only get you so far when another brand sells a seemingly superior product.
German brands should be concerned for two reasons. First, the Berlin Gigafactory can build 500,000 cars per year. The only thing currently standing in Tesla's way is finding enough workers to make these cars. Like the Texan Gigafactory, the European factory will create loads of jobs.
The second reason German manufacturers should be concerned is Tesla's new manufacturing techniques. Tesla developed new manufacturing processes, which will likely lead to a cost-drop. If Tesla can transfer these savings over to the customer, it will be a huge win.
Tesla's second factory outside US borders also opens up a brand-new supply chain. The factory in China is already churning out Model Ys rapidly, and it can now supply the East only.
The Berlin factory can easily supply Europe and Australia, while the Texas factory will supply America.
"I expect Tesla to be as big as BMW in Germany in two or three years and to overtake Mercedes by 2025," said Ferdinand Dudenhoffer, a professor at the Center for Automotive Research in Duisburg.
Although German manufacturers have welcomed the competition, they must be feeling tense behind hidden doors. Legacy manufacturers are currently investing billions just playing catch up.
The German government appears to be happy with the new factory, contributing heavily to the economy. "The settlement of Tesla is the first major project in Germany that combines climate neutrality with the creation of additional industrial jobs. The Tesla settlement shows once again how attractive Brandenburg is as a business location," said Minister-President of Brandenburg, Dietmar Woidke.
"The Tesla factory in Grunheide means that Brandenburg as a business location is perceived much more globally. A whole new value chain for electromobility is developing in the state - and is making Brandenburg a pioneering state. I am firmly convinced that the Tesla project will be formative for our state and will have a pull effect for years to come," said German economics Minister, Jorg Steinbach.