BERLIN—Tesla Inc. has secured local approvals in Germany to formally begin electric-vehicle productions at its new plant outside Berlin, a key pillar of Chief Executive Elon Musk’s push to rapidly boost output and sales.
Tesla’s plant challenges Europe’s established auto makers, who have invested billions over the past few years to develop electric cars and catch up with the U.S. powerhouse.
The approval comes with conditions that Tesla must fulfill before the new vehicles can be driven from the factory to customers, Brandenburg state officials said. Tesla must provide assurances regarding water usage as well as pollution controls, which have been at the forefront of objections to the plant by environmentalists.
The Berlin plant, when fully operational, will have a production capacity to make 500,000 vehicles a year and will initially make Model Y compact crossover vehicles. Tesla produced just under one million vehicles last year globally. The plant is Tesla’s third, following Fremont, Calif., and Shanghai. Tesla expects to inaugurate production at a new plant in Austin, Texas, soon.
Tesla’s German factory will play a key role in helping the company build market share in Europe, by allowing it to tailor models for local customers. Local production also should allow Tesla to cut costs by reducing the need for expensive shipping and eliminating import duties.
Tesla began production at the facility in 2020, but was hit by a string of delays including environmental opposition and errors by the company in seeking approvals. The factory has been largely complete since late last year, but only got official approval from Brandenburg state government Friday.
When Tesla first approached Brandenburg in 2019 about building a plant near Berlin, the state government was alarmed by how fast Mr. Musk wanted it to go up. Local officials began to refer to the company’s aggressive—for Germany—timeline as living on “Tesla time.”
To accelerate the complex approval process, the state relied on fast-track legislation created after German reunification to attract investment. That allowed Tesla to receive preliminary approval to build the factory in stages, pending final approval at the end of the process.
“This was a mammoth task,” Brandenburg Prime Minister Dietmar Woidke said. “Today is a very good day for Brandenburg and, I believe, for all of Germany.”
Brandenburg Economics Minister Jörg Steinbach said the plant would become a magnet for further investment in the region. “Suddenly we are known, suddenly people are asking about us,” he said.
Tesla is the world’s largest auto maker by market value, but its production is dwarfed by rivals such as Volkswagen AG, Bayerische Motoren Werke AG, Mercedes-Benz Group AG and Jeep and Chrysler owner Stellantis NV.
However, it maintains an edge in the fast-growing EV market. In 2021, Tesla was the top-selling fully-electric car maker in Europe with sales of 167,549 vehicles, according to Jato Dynamics, ahead of Volkswagen, which sold 166,357 fully-electric cars, and Renault, which sold 97,129 models. Tesla’s Model 3 was the bestselling electric car in Europe last year, handily beating Renault’s Zoe and VW’s ID.3.
Rival car makers are eyeing Tesla, though. After years of preparation, European auto makers are creating a range of models for potential customers that didn’t exist when Teslas first hit the showrooms. Last year, for example, VW’s new ID.4; the Enyaq, built by VW-owned Skoda; and Fiat’s electric 500 model made the biggest gains in market share, according to Jato Dynamics.
Electric vehicles accounted for 10.3% of total new car sales in Europe in 2021. “Over the last 10 years, pure electric cars have grown faster than any other segment,” said Felipe Munoz, a Jato analyst.
Tesla also faces potential challenges from Germany’s powerful IG Metall labor union, which is eager to organize the Berlin plant. Workers this week elected a council empowered to mediate on behalf of staff over working conditions, but not allowed under German law to engage in collective bargaining.
In addition, environmental activists have sued to block a utility provider from increasing the water it draws from the ground to serve the Tesla plant. If the court sides with the plaintiffs, the water company says it would have a shortfall so large that the entire local community would be affected.
Write to William Boston at william.boston@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
