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Tesla's Factory Threatens To Disrupt German Auto Industry

AILSA CHANG, HOST:

The home of the autobahn will soon be home to Tesla's newest Gigafactory. That's what founder Elon Musk calls his company's manufacturing sites. The electric automaker plans to start building cars outside Germany's capital of Berlin this summer. And as NPR's Rob Schmitz reports, it threatens to upend Germany's traditional combustion engine car culture.

ROB SCHMITZ, BYLINE: Seven years ago, Mathias Dopfner was at a ceremony celebrating Elon Musk. Dopfner, who's head of the media company Axel Springer, asked a CEO of one of Germany's biggest carmakers if he saw Tesla as a threat. He didn't.

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MATHIAS DOPFNER: These guys in Silicon Valley - they have no clue about engineering, about building really beautiful and great cars. So we don't have to worry.

SCHMITZ: At the time, the value of Tesla's shares was $23 billion - a quarter of that of Germany's largest carmaker, Volkswagen. But times have changed. Within seven years, Tesla's market cap has skyrocketed to more than $800 billion - more than three times bigger than that of VW, Daimler and BMW, Germany's three largest automakers, put together. And to make matters worse for Tesla's German competitors, Elon Musk is overseeing the finishing touches of his company's new Gigafactory in Berlin.

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ELON MUSK: Deutschland rocks (laughter). Yeah. Wait until we have the rave cave here. That's going to be great (laughter).

SCHMITZ: The rave cave, along with the rest of the Gigafactory, is under construction outside Berlin here in the town of Grunheide. When it opens later this year, it'll produce batteries, drive trains and eventually assemble 500,000 of Tesla's trademark electric vehicles per year. Arne Christiani is mayor of Grunheide.

ARNE CHRISTIANI: (Through interpreter) In three months, there will be a new road here - four lanes, a bike tunnel, a new highway exit over there and a new train station here outside the factory.

SCHMITZ: The Gigafactory promises to transform this sleepy town of 9,000 people nestled in the forest into one of Europe's largest factory towns, with 40,000 workers, an estimated half of them commuting from nearby Berlin.

CHRISTIANI: (Through interpreter) At the end of every fiscal year for 16 years in a row, I've had to apologize for our town's balance sheet and for the fact that we failed to bring high-quality jobs to the region. Now that we have the opportunity to do so during a pandemic, no less, is a once-in-a-lifetime chance for me.

SCHMITZ: This is Tesla's fourth Gigafactory after Reno, Buffalo and Shanghai, and it's the company's first in Europe. Elon Musk chose Grunheide for its location - right off the autobahn, on a train line and near Berlin's new airport. And building it would be quick. The town had already approved plans for a BMW auto plant two decades ago, which was never built. And that's not the only thing that's come easy for Tesla in Germany. Earlier this month, Germany announced Tesla is one of 11 companies that'll receive billions of dollars' worth of government subsidies aimed at increasing battery cell production.

CHRISTIAAN HETZNER: There is a massive movement going on within Europe to transition to a zero-carbon economy.

SCHMITZ: Christiaan Hetzner of Automotive News Europe says the EU wants a zero-carbon economy by 2050. The road transport sector accounts for a fifth of carbon emissions, and German automakers specialize in big, heavy SUVs and sedans.

HETZNER: If they don't achieve their targets, they are facing fines that are so considerable that they could put entire companies out of business.

SCHMITZ: Last year Volkswagen missed its carbon emissions target for its fleet by just 0.5 grams per kilometer, and the EU punished the company by forcing it to pay a fine worth $121 million.

HETZNER: If you missed it by several grams and you have a significant fleet, you were probably talking something in the - at least a billion in fines that one single company would have to simply pay to the European Union.

SCHMITZ: Two years ago Fiat Chrysler faced bankruptcy when the EU threatened to fine it $2 billion because its car fleet's carbon output was too high. Instead, the company made a deal with Tesla to pool their fleets together to reduce Fiat Chrysler's emissions. Tesla receives hundreds of millions of dollars a year - enough to fund its Berlin Gigafactory. And Fiat Chrysler was saved from insolvency.

This is a lucrative business for Tesla. The company made $3.3 billion in the past five years from 11 states in the U.S. that, like the EU, force automakers that can't meet emissions reduction goals to buy credits from companies like Tesla. But this revenue stream promises to run dry in the coming years as EU automakers ramp up their electric vehicle fleets. But because Tesla's entire fleet is electric, Birgit Dietze of IG Metall, Germany's auto workers union, says the company is already ahead of its German competitors.

BIRGIT DIETZE: (Through interpreter) Tesla has a bit of an advantage because it isn't having to shift from using old tech to new tech but is starting immediately with the new technology. That simplifies matters somewhat.

SCHMITZ: What might not be so simple for Tesla is adjusting to Germany's union rules. In the U.S., Tesla workers have filed complaints about low pay and poor working conditions, and Elon Musk has resisted their efforts to unionize. But Dietze's IG Metall is a powerful force in Germany. In 2018 it won the right to a 28-hour workweek and a 4% pay raise for its industrial workers after a series of strikes that cost German automakers millions of dollars.

DIETZE: (Through interpreter) We expect Tesla to adhere to German labor law, and we're confident it will.

SCHMITZ: Tesla did not respond to interview requests from NPR. Back at the Gigafactory construction site, Grunheide Mayor Arne Christiani says everything will work out for Tesla and for his town. He says Germans, who are among the world's biggest car enthusiasts, can't wait for the factory to be up and running.

CHRISTIANI: (Through interpreter) On the weekends, we're already seeing Tesla tourism here. Regardless of the weather, fans arrive from all over with cameras to document the construction of the factory.

SCHMITZ: Mayor Christiani drives an Audi with an internal combustion engine. It comes with the job. He says he's not sure if the town will switch its car fleet to Tesla's, but if they do, he says they'll make sure they're built here.

Rob Schmitz, NPR News, Grunheide, Germany.

(SOUNDBITE OF THE KINKS SONG, "THIS TIME TOMORROW") Transcript provided by NPR, Copyright NPR.