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German automation talent powers Tesla chief's battery move to Europe

The new factory near Berlin is designed to help the company meet production goals and stem defections of key staff members to rival firms

Frankfurt

TO unclog bottlenecks last year at his Tesla Inc plant in California, Elon Musk flew in six planeloads of new robots and equipment from Germany to speed up battery production for its Model 3.

Now, the Tesla CEO is trying to tap that German automation ecosystem directly with Tuesday's announcement that the electric carmaker will build a European car and battery factory near Berlin.

So far, Mr Musk has failed in his plans to create a factory so highly automated that it allows Tesla to make cars more efficiently than much bigger rivals. As a result, the carmaker has struggled to meet production goals and been hit with defections of key staff members to rival firms. The new German factory is designed to help change all that.

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"Everyone knows German engineering is outstanding for sure. You know that is part of the reason why we are locating Gigafactory Europe in Germany," Mr Musk said at a prestigious German car awards ceremony in Berlin late on Tuesday.

BMW has a factory in Leipzig, where it builds its i3 electric vehicle and it will source battery cells from a factory in Erfurt run by China's Contemporary Amperex Technology Ltd (CATL).

VW is retooling a plant in Zwickau to build 330,000 electric cars and German engineering giant Siemens AG, which has an industrial and technology hub in Berlin, last week said it met with Mr Musk to discuss projects in the area of advanced manufacturing and car charging.

German carmakers and suppliers are tapping a one billion euro (S$1.5 billion) fund set up by Germany to increase battery cell production and are further aided by a government-funded research facility to increase battery cell development know-how.

Tesla has yet to meet its goal of building more than 500,000 Model 3 cars by 2018. That goal was set back in 2016 and since then, Tesla's production guru, Peter Hochholdinger, a former Audi production expert, quit to joined rival Lucid. This year, Tesla expects to deliver 360,000 to 400,000 cars, a target that includes selling all models.

By contrast, the Volkswagen brand delivered 6.24 million cars last year and is readying its global production network to build 22 million electric cars by 2028.

To ramp up manufacturing, Tesla started making its Model 3 in a tent, but the California-built cars often failed to meet German quality standards. In August, German car rental company Nextmove walked away from a five million-euro order for 85 Tesla Model 3 electric vehicles, following a dispute over how to fix quality issues.

Although Tesla has chosen a high-cost location, there is higher potential for automation with electric cars since they are less complex to build than combustion engined vehicles. A combustion engined car has 1,400 components in the motor, exhaust system and transmission.

By contrast, an electric car's battery and motor has only 200 components, according to analysts at ING. While the average combustion engine takes 3½ hours to make, and the average transmission requires 2.7 hours of assembly, an electric motor takes only about one hour to assemble, consultants at Alix Partners said in their Global Automotive Outlook study.

"Personnel is not a high-cost factor in the production of electric cars," Evercore ISI analyst Arndt Ellinghorst said.

Today, the biggest cost factor is still battery packs, which amount to between 30 per cent and 50 per cent of the cost of an electric vehicle.

By adding the "Made in Germany" quality, Tesla could significantly boost sales of its electric cars, which are already class-leading. REUTERS