Its stock might be flying high at the moment, but electric-car maker Tesla (NASDAQ: TSLA) has run into some major roadblocks with its ambitions to build its first European Gigafactory in Germany.
On Sunday, a German court ordered that Tesla stop clearing forest land in the eastern state of Brandenburg where it plans to build its new car and battery production factory. Under pressure from local environmental activists, the temporary order to stop work was made pending further hearings and a decision over a local group’s appeal against the factory.
The U.S. carmaker has not yet been officially granted permission to build the factory but was, however, granted permission by Germany’s environment ministry to begin preparations on the 300 hectare site “at its own risk.”
How Important Is a German Gigafactory to Tesla?
Tesla currently operates three Gigafactories internationally — one in the Nevada desert, one in Buffalo, New York, and one in Shanghai that opened last October just 10 months after construction started.
These are massively important to the company in terms of meeting its quarterly and annual production targets. As recently as two years ago, Tesla was regularly lambasted by analysts and customers alike for consistently failing to meet these vehicle production targets. However, since the Shanghai Gigafactory opened, it has been producing an estimated 1,000 cars per week and the company recently forecasted that it would “comfortably exceed” 500,000 vehicles units produced and delivered in the coming year, though this might be impacted now by the coronavirus outbreak in China.
With factories now up and running in both the North American and Chinese markets, the next place to look was obviously Europe. Tesla CEO Elon Musk was keen to open his first European factory in Germany due to the reputation of the country, stating back in November that “everyone knows that German engineering is outstanding and that’s part of the reason we are locating our Gigafactory Europe in Germany.”
The company had also reportedly been eyeing up the U.K., but decided against it due to ongoing uncertainty over Brexit.
Could This Jeopardize the German Gigafactory?
Though this court-order halt will be an unwelcome speed bump for Musk & Co, it is unlikely to stop the company in its tracks for too long.
In making the decision, the court said that “it should not be assumed that the motion seeking legal protection brought by the Green League lacks any chance of succeeding.” Indeed, the ruling German government is reportedly keen not to hold up plans for the factory and damage its reputation internationally as a place to do business.
The country once had one of the most formidable automotive industries on the planet, but a changing landscape of tighter emission restrictions and technological advances has hurt the sector, with production hitting its lowest level in 23 years last year. Attracting a forward-thinking company like Tesla would be invaluable for Germany, particularly for the local economy where it plans to hire about 12,000 people.
And as for Tesla? Well, production in the German factory was not slated to begin until 2021 anyway, so this hold-up shouldn’t affect this year’s forecasts. However, the company will be keen to get started as soon as possible, with European rivals like Volkswagen (ETR: VOW3), Daimler (ETR: DAI), and BMW (ETR: BMW) planning to spend a combined $45 billion on electric vehicle technology over the next three years. Not to mention the competition Tesla faces in China and the U.S. from companies like NIO (NYSE:NIO), Ford (NYSE:F), and General Motors (NYSE:GM).
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James is the Head of Content and Publishing at MyWallSt. James’ favorite stock is Teladoc because he believes that they are at the forefront of revolutionizing the healthcare industry.