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Elon Musk's plan to build a new Tesla plant in Germany makes no sense

Elon Musk "data-mce-source =" Xinhua via Getty Images "data-mce-caption =" Elon Musk. "/><span class=Tesla CEO Elon Musk.Xinhua via Getty Images

Last week, Tesla announced that it would build a new Gigafactory – Tesla's term for a rather grandiose term for a car factory – near Berlin.

That would bring Tesla Gigafactory's count to four, with facilities in Nevada, New York State, China and now Germany. Not all of these plans are explicitly for vehicle assembly, but could be if necessary. In considering this, Tesla has committed to building more factories than any other automaker in the world.

Tesla could offer some industrial logic for a factory in Shanghai, as China is probably the world's best growing market for all-electric vehicles and Western automakers prefer to manufacture vehicles where they sell them.

But Europe is a very different story.

Capacity utilization in the automotive manufacturing sector is in the 80% range, a built-in structural problem that industry leaders have been worrying about for a decade (former Fiat Chrysler Automobiles CEO Sergio Marchionne has made a big deal deal with in a widely debated presentation in 2015, undoubtedly titled "Confessions of a Capital Junkie").

A mature market with limited future growth and many underutilized factories

FILE PHOTO: Fiat Chrysler CEO Sergio Marchionne answers media inquiries during FCA Investor Day at Chrysler World Headquarters in Auburn Hills, Michigan, USA, May 6, 2014. REUTERS / Rebecca Cook / File PhotoThe late CEO of Fiat Chrysler, Sergio Marchionne.Thomson Reuters

The European auto market is large and mature, and probably not much growth ahead. A wildcard is a transition to electrification, driven by rising government emissions and fuel economy standards, and problems with diesel engines following the Volkswagen fraud scandal.

Electric cars, in fact, will not solve the problem of overcapacity. Europe could completely abandon internal combustion and still have … 20% of its car factories operating below the maximum level.

Enter Tesla. CEO Elon Musk was in Germany last week to participate in the annual Golden Steering Wheel awards, presented by Auto Ins's Axel Springer publication. Never missing the opportunity to keep Tesla's enthusiasm high, Musk gave the German public what he wanted and announced the Berlin Gigafactory.

Automobile manufacturing is a bit variable; There are operating factories in the world that have existed since the early twentieth century. Tesla's main assembly plant in northern California was opened in the 1960s (Tesla bought it after the financial crisis). But for the most part, 21st century automation outside of tailor-made operations for expensive exotic cars is a commoditized process.

Musk has repeatedly proposed to reinvent this situation by creating highly automated factories, but Tesla has done just the opposite: California makeshift assembly lines and a larger number of in-house employees than Fremont had when it was a joint General Motors-Toyota factory. in the 1980s.

Maybe Giga Berlin can fix that, but it really wouldn't solve the overall problem of overcapacity. The bottom line is that Europe no longer needs car factories.

What is the reason for Musk? It's mysterious …

tesla factoryTesla factory in California.Tesla

In this context, it is mysterious, if not intriguing, that Musk wants to build a new factory. There are many factories that European automakers would be happy to sell you for a song, and there are also contract manufacturers – such as Magna from Austria – who could start assembling Tesla vehicles faster than Tesla could build and totally new facilities. .

It is worth noting that while Tesla's ambitions are great, these new Giga factories are billion-dollar propositions – and Tesla is realizing them with borrowed money in 2019. If they have been in operation for 30 years, inflation should take care of inflation. debt burden. But much of the competition built its factories with money raised decades ago. And some of these factories are scheduled to close or are operating well below full capacity. Ford is reducing its presence in Europe to 18 of 23 factories and reducing shifts.

This should represent a happy hunting ground for Tesla, and Musk can still buy instead of build. But obviously building something shiny and new looks sexier.

In addition to the issue of overcapacity in Europe, any new Tesla plant is likely to depressingly replicate Tesla's distorted approach to car assembly. As all other major automakers adopted an industry-standard "lean" manufacturing model pioneered and refined by Toyota in the 1970s and 1980s, Tesla continues to operate more like the 1950s GM (or, with his makeshift assembly line, 1910's Ford).

Musk's cult of the "hell of production"

Elon Musk "data-mce-source =" David McNew / AFP / Getty Images "data-mce-caption =" Elon Musk speaks near a Falcon 9 rocket during his announcement that Japanese billionaire Yusaku Maezawa will be the first private passenger flying around the moon aboard the SpaceX BFR launch vehicle at SpaceX headquarters and the rocket factory on September 17, 2018 in Hawthorne, California. - Japanese billionaire businessman, online fashion tycoon and art collector Yusaku Maezawa was unveiled as the first tourist to fly a SpaceX rocket around the moon. "/><span class=Musk makes it hard.David McNew / AFP / Getty ImagesThe output is quite attractive; Tesla makes a good car. But Musk has also created a cult of "production hell" that is simply disconcerting to industry professionals who are used to uneventful vehicles moving from launch to production in a year or two. Germany, an industrial power, is especially good at this, so Musk parachuting with his sick ideas might not be that good.

But honestly, he shouldn't worry. Or maybe he should, if his main goal is to keep Tesla's story current (he is). Tesla already has a sort of factory in Europe, located in the Netherlands, but is a final assembly center, completing vehicles shipped from the US. A nut soup factory in the industrial heart of Europe is a much more attractive turning point.

In many ways, Musk deserves his reputation for genius. He is by far the largest living car salesman, a setback for the business giants: Henry Ford, Enzo Ferrari and William Durant. But when it comes to things to block and attack, your genius is useless. He constantly complicates and safely chooses the hard way when the easy way looks him in the 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 much easier ways to do it than to build a factory that the continent doesn't need.

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