Tesla's Texas battery bet costs carmaker US$1.3b German aid

[BERLIN] Tesla will forgo 1.14 billion euros (S$1.77 billion) of state aid for the factory it is building in Germany because it has decided to try to produce a new type of battery cell at scale in Texas first, a person familiar with the matter said.

The US automaker has been working on so-called 4680 battery cells at a site near its car plant in Fremont, California. Chief executive officer Elon Musk said last year that after the company proved it could make them on a pilot assembly line there, it would manufacture them at scale at the factory it has been constructing outside Berlin.

This made Tesla eligible to receive public funds from Germany as part of the European Union's Important Project of Common European Interest initiative, which backs first industrial deployments of battery projects in member states.

Now that Tesla has shifted gears and is further along producing 4680 cells at its factory under construction in Austin, Texas, it is no longer eligible for the money, according to the person, who asked not to be identified discussing private information.

Tesla informed German authorities it will not tap the support package, Beate Baron, a spokesperson for the country's Economy Ministry, said earlier Friday (Nov 26). She did not discuss the reason for the decision.

"It has always been Tesla's view that all subsidies should be eliminated, but that must include the massive subsidies for oil & gas," Musk tweeted after the ministry's announcement. "For some reason, governments don't want to do that."

Musk, who also runs rocket maker Space Exploration Technologies (SpaceX), has bristled for years at detractors faulting him for taking advantage of government support.

Examples of this include the US loan that helped Tesla get the Model S sedan into production, which the company paid back early. SpaceX is a major contractor for the National Aeronautics and Space Administration and US Defense Department.

After his initial post, Musk revisited a 3-and-a-half-year-old exchange with another Twitter user who criticised Tesla and SpaceX's use of subsidies.

"Combined Tesla+SpaceX market cap is now over US$1.2T," wrote Musk, who then took issue again with a figure mentioned in a May 2018 Twitter thread.

Tesla shares fell 3.1 per cent on Friday (Nov 26).

Tesla has almost completed construction of an EV factory in the small town of Gruenheide, southeast of the German capital, and also plans to manufacture battery cells at the site.

While Musk wants to start assembling Tesla Model Ys in Gruenheide before the end of the year, local authorities still have not granted final approval for the project.

Germany's Economy Ministry estimates that Tesla is investing around 5 billion euros in Gruenheide. Der Tagesspiegel newspaper reported Tesla's decision earlier on Friday (Nov 26).

Musk, 50, is the world's richest person with a US$304.4 billion fortune, according to the Bloomberg Billionaires Index. He has added US$134.7 billion to his net worth this year, more than double the next-biggest gain in the index.

BLOOMBERG