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The Case For Tesla’s European Gigafactory, & A Massive International Opportunity

Image Credit: Tatyana Figueiredo, used with permission. Follow this Brazilian/American Actress and Tesla Lover on Instagram

In Max Holland’s excellent article on BMW last week, Max did an excellent job refuting BMW’s claims that batteries will get more expensive as more of the base materials are needed. He also covered the reasons why customers prefer Tesla’s electric vehicles to the BMW i3. An underlying point is that BMW, Mercedes, and Audi have failed to create compelling electric vehicles and that has created a big hole in the market.

In this article, I’m going to discuss the huge opportunity that Tesla has to increase sales internationally, if it just follows its German competition into markets around the globe. Even though Tesla is years ahead of those competitors in technology, I’ll just assume Tesla’s sales will be equal to their sales today in 3 years time. I’m well aware that Tesla sells to people who have never purchased a luxury vehicle. I myself am an example of the “Tesla Stretch,” a phenomenon in which a person spends substantially more on a Tesla than any other car they have purchased, because it is worth it.

This article will focus on the opportunity in the broader global luxury market for Tesla. All of the mainstream customers who stretch to buy a Tesla and those who purchase a Tesla for use as a robotaxi are “bonus demand” that Tesla will have to deal with.

Tesla Plans To Build Gigafactory In Europe

Since 2016, Elon Musk has been talking about needing a Gigafactory on the 3 major continents for auto sales (North America, Asia, and Europe). Tesla has stated 2 major advantages of this approach and I am adding a 3rd.

  1. Internal Costs: Transportation costs, transportation time, and the huge working capital cost of building a car and then not getting paid for it for 30 to 60 days, as opposed to less than 30 days for cars made and sold on the same continent.
  2. External Costs: Taxes, tariffs, and local electric vehicle incentives are frequently more favorable for vehicles made partially or fully in the country or trade region they are sold in.
  3. Buy Local: Nationalism, patriotism, regionalism, whatever you call it — people like to buy products that are made closer to where they live. They like to help keep the people in their country or region employed.

With President Trump being more aggressive on the trade front, this increases the importance of the second and third points. Countries are retaliating with their own forms of nationalism in response to Trump’s tariffs and generally combative international approach.

Image courtesy of Jason Yang’s YouTube channel

Until this year, all of this talk was just that — talk — but this year, Tesla has started and almost finished construction of the first phase of the China Gigafactory. Tesla is now installing the production equipment and plans to start production of the less expensive version of the Model 3 in the fourth quarter of this year.

Tesla’s new Gigafactory 3 will allow it to serve the greater China market, taking advantage of the reduced transportation, labor, and tax costs mentioned above, and also getting some additional sales from people who only buy products made in their own region.

Shouldn’t the same reasons also apply to Europe? I thought I would look at the sales of Tesla’s 3 biggest competitors and see where the opportunities lie.

As you can see in the charts above, Tesla’s direct competitors get 82% of their car sales from outside the Americas, while Tesla, even though Q2 2019 saw a big expansion in international sales, still gets only 33% of its sales from outside its home continent. You can easily imagine Tesla having sales similar to their German competitors in all regions, once they have established local manufacturing in all 3 regions.

Sales estimates from my interpretation of Elon Musk’s comment on the ARK podcast on Feb 19, 2019

If Tesla completes both its Chinese and European gigafactories by 2022 and each factory supports the production of 700,000 vehicles, Tesla will have capacity for slightly more than 2 million vehicles per year. That capacity aligns nicely with its competitors’ current sales (which will likely decrease as Tesla consumes market share) and is right on target with Elon’s predictions documented in this article.

New Markets

Screenshot of Tesla Club Morocco, public Facebook Group administered by Khalil Amar.

In order for Tesla to expand sales ~10 fold from 2018 to 2022, it needs to expand into more medium-sized markets, like Eastern Europe, Africa, South America, and India. Even smaller countries like Morocco that we don’t think of as major auto markets have enough demand to support an active Facebook group with 942 members. With Tesla’s very efficient service model, for smaller countries like Morocco, owners would only need a couple banks of Superchargers, one or two service centers, and a few mobile service technicians to support the entire country.

This would be little more than what is needed to support a single state in the US. On the other hand, Elon mentioned at the recent shareholder’s meeting that India is a country he plans to expand into in 2020. India is a market that makes it very difficult to sell cars that aren’t made locally, and Elon has commented on this in the past. With total car sales in 2018 of just 3.4 million, India is clearly not a big enough market to support its own Gigafactory yet. Elon will have to negotiate a deal with the country to reduce tariffs or sales will be very small.


When you watch or listen to CNBC (which I don’t recommend), they talk incessantly about Tesla’s upcoming “Demand Problem.” On the other hand, they conveniently never mention the opportunity that Tesla has to expand internationally. Tesla has 3 major advantages over existing automotive manufacturers as it works to localize its cars:

  1. Teslas have no emissions, so that eliminates emission testing.
  2. Tesla builds its cars to exceed safety standards of all regions, so the company doesn’t have to localize them to meet safety standards
  3. Tesla does have to put different charging ports and move the steering wheel in some markets today. As Full Self-Driving is deployed and gets approved in different regions around the world, Tesla will be able to remove the steering wheel on cars, or at least make it a drive by wire system so it doesn’t have any physical connections to the car. Many of the localization requirements might be changing the language on the display.  They can be done with over-the-air updates, allowing Tesla to change a car intended for Japan to Australia (both right-hand drive markets), if the charging ports are the same.

These advantages should allow Tesla to sell millions of vehicles a year with only 5 vehicle models (S, 3, X, Y, and Pickup) made in only 4 factories. BMW, according to its 2018 annual report, uses 31 factories to make 19 models and doesn’t even have a pickup. For an example of how Tesla covers 8 of Toyota’s models with just one (the upcoming Model Y), see this article I wrote after the Model Y unveiling on March 14, 2019. Tesla won’t have every niche of the market covered, but it has a plan to cover the largest segments of the car and truck markets with a substantially smaller and simpler production base that should allow Tesla to enjoy greater economies of scale than other manufactures.

Use my Tesla referral link to get 1,000 miles of free Supercharging on a Tesla Model S, Model X, or Model 3, here’s the link: (but if someone else helped you, please use their link).

Source: BMW Group Annual Report 2018, Daimler Annual Report 2018, Audi Annual Report 2018

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Written By

I have been a software engineer for over 30 years, first developing EDI software, then developing data warehouse systems. Along the way, I've also had the chance to help start a software consulting firm and do portfolio management. In 2010, I took an interest in electric cars because gas was getting expensive. In 2015, I started reading CleanTechnica and took an interest in solar, mainly because it was a threat to my oil and gas investments. Follow me on Twitter @atj721 Tesla investor. Tesla referral code:


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