A little over two weeks after it announced receipt of "conditional approval" to open its $5.5 billion gigafactory in the town of Grünheide near Berlin, Tesla$Tesla Motors(TSLA)$ officially announced the factory's opening on Tuesday. Reports say that CEO Elon Musk literally danced in joy at the opening.
Investors are pretty happy, too, because Tesla stock is up 3.3%. Why is this such a big deal for Tesla? As The Wall Street Journal explained yesterday, Tesla plans to grow its Berlin gigafactory to the point where it will be able to produce 500,000 cars per year -- but that's just one part of the good news.
By building cars in Europe, Tesla will be able to avoid both the cost of shipping cars to Europe from plants in the U.S. and China as well as import tariffs -- two factors that should lower the price of its cars, encourage more sales in Europe, and make Tesla better able to compete with local car rivals such as BMW and Volkswagen$Volkswagen AG(VLKAF)$ . As Musk said in a statement, "[It] makes a huge difference to capital efficiency to localize production within a continent."
Additionally, the plant's location in Germany will make it easier for Tesla "to tailor vehicles to local tastes,"which should also help with sales.
Not that Tesla necessarily needs help. As the Journal points out, sales of electric vehicles (EVs) and plug-in hybrids in Europe nearly doubled as a percentage of overall sales last year, to 18%. Tesla's biggest challenge at this point will be ramping up production to satisfy all the demand for EVs in Europe.
Granted, as the CEO pointed out last night, "The start of production is nice, but volume production is the hard part." But with Tesla targeting 5,000 to 10,000 cars per week produced by the end of this year, it seems the new German plant will be at least 50% operational -- and potentially even fully operational -- in just eight more months, maxing out its 500,000 car-per-year capacity.
Simply put: Tesla's off to the races in Germany. No wonder investors are excited.
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