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The Street
The Street
Business
Rob Lenihan

Volkswagen Pulls Out an Unexpected Weapon Against Tesla

This country isn't big enough for the both of us.

Volkswagen  (VLKAF)  and Tesla (TSLA) will be squaring off in Germany as both companies recently unveiled plans to operate electric vehicle manufacturing plants 140 miles away from each other.

Volkswagen just said it would spend some $2.2 billion to build a new manufacturing facility for its Trinity electric vehicle that will be built near its main plant in Wolfsburg.

'Setting Benchmarks'

Construction is to begin as early as spring of 2023, Volkswagen said, with the net carbon-neutral Trinity model rolling off the assembly line from 2026.

The company said it is aiming for a production time of 10 hours per vehicle by employing such strategies as fewer components, more automation, and leaner production lines.

The company's Accelerate strategy includes such features as a much shorter charging time and a range of over 700 kilometers (435 miles). 

"We are setting benchmarks in the automotive industry with Trinity and the new factory and turning Wolfsburg into the global lighthouse for cutting-edge and efficient vehicle production," CEO Ralf Brandstätter said in a statement.

Volkswagen said it is "seeking to attract new groups of customers and tap additional sources of income" while making autonomous driving available to many people by 2030.

While Volkswagen was making its announcement, Tesla was taking the battle to Volkswagen's home turf by launching a recruitment campaign for its Gigafactory in Berlin, just two days after obtaining the permit.

The company, led by CEO Elon Musk, wants to significantly boost production to increase its market share in the EV market that the company currently dominates.

'A Major Beachhead for Tesla'

On its website, the car manufacturer has posted various job advertisements and above all displays a message that could not be clearer: "Giga Berlin is allowed to open," Tesla posted on Twitter in German. 

Wedbush analysts Daniel Ives and John Katsingris, who have an outperform rating on Tesla, said in a note to investors that the approval from German authorities "removes a major overhang on the stock over the past few months."

"The Berlin factory establishes a major beachhead for Tesla in Europe with potential to expand this factory to production of ~500k vehicles annually with Model Y front and center over the coming 12 to 18 months," Ives said in a research note.

The analysts said that "with the race for electrification in Europe hitting another gear and competition for EVs increasing from every angle with VW among others doubling down on its EV ambitions, we view Giga Berlin as a major competitive advantage for Tesla to further build out its supply footprint in this key region."

"The red tape and headaches seen around the delays/disputes opening up this flagship European factory has been frustrating for investors to watch unfold as many on the Street were doubting if Giga Berlin ever actually would open for Musk & Co.," the note said. 

The analysts added that "we cannot stress the production importance of Giga Berlin to the overall success of Tesla's footprint in Europe and globally, as the current Rubik's Cube logistics of producing cars in China at Giga Shanghai and delivering to customers throughout Europe was not a sustainable trend."

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