This is why Tesla is giving away billions in subsidies to the battery factory

After months of negotiations with the Federal Ministry of the Economy, Tesla has decided not to receive billions in funding from the Second European Battery Cell Program (IPCEI). The US automaker could have received just under 1.14 billion euros for the planned battery plant, which the company has declared is the “world’s largest facility” of its kind. He heard from the ministry that nothing stands in the way of the decision.

Then on Friday afternoon, a sudden turn emerged: Tesla doesn’t want the money. The Ministry of Economic Affairs has now confirmed this. The financing was well suited to the concept of European financing – at first glance.

As of August 2021, the Federal Ministry of Economics announced in the monthly publication “Schlaglichter der Wirtschaftsppolitik” that the volume of investment in the production of Tesla battery cells in Grünheide will amount to “about five billion euros”. From this, the stock support of the mentioned size can be calculated as reasonable.

The Grünheide plant was to become the largest battery manufacturer in the world

Planning was of strategic importance to Tesla. Tesla’s battery plant in Grünheide was supposed to be the first in the world to produce the new cells that company president Elon Musk introduced in fall 2020 on the occasion of Battery Day. They should provide a larger range in a more compact size, moreover, they are manufactured in a way that is much more environmentally friendly than the processes currently in use. Tesla also applied for and obtained pre-approval to begin early construction at Brandenburg in January 2021.

As it turns out, that appears to be the problem. Time and time again, Tesla boss Elon Musk has commented on approval processes in Germany that, in his view, were too slow. Now he appears to be following the criticism into action.

Therefore, one of the financing requirements, and therefore a condition for the inflow of funds, is the first use of the financed technology in the plant to be financed. According to the original layout, this should have been the serial production of 4,680 cells in Grünheide. In addition, a research unit has been set up as a prerequisite by the ministry in order to prevent government funding from simply establishing an “extended working table” (quote from Federal Minister for Economics Peter Altmaier, CDU) in Grünheide.

Now it does not appear that Musk is ready to delay the “first use” of the technology as long as European financing terms require him. Given the total amount in the room, this would be a powerful move and an expression of the entrepreneurial self-image that is rarely seen these days.

From a purely economic point of view, Musk will have to see such huge advantages in early deployment elsewhere in the world that more than 1 billion euros could be forfeited. In any case, the battery plant will be built in Grünheide – only now without tax money.

Incidentally, Musk used the media turmoil over the waiver to make clear via Twitter that Tesla is generally against any kind of support. But this should also apply to gas or oil subsidies. In other words: Tesla generally accepts subsidies as long as competition distortions may result from others doing so, but not its company.

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