The stock price of Tesla shot up by 7.9% following the news that Tesla had successfully opened its new gigafactory in Germany. The factory cost the electric car manufacturer over $5.5 billion and it will help Tesla overcome the production difficulties that have hampered its ability to meet the overwhelming demand for its vehicles.
The gigafactory is based in Berlin and it is expected to be able to produce anywhere up to 500,000 cars per year. It marks the first manufacturing hub in Europe for Tesla and it will significantly reduce costs. Not only will there not be any costs in shipping the vehicles to Europe, but Tesla will also be able to avoid any import tariffs. This will have the additional bonus of allowing Tesla to reduce the price of its cars and boost sales across Europe.
What this means for the future of Tesla
Getting a factory built in Germany was no mean feat for Tesla and the whole project was delayed by eight months due to issues with local licensing. Thankfully, all of these issues have been overcome and Tesla boss, Elon Musk, was even pictured dancing following the factory’s opening.
Tesla faces tough competition in the European car market against the likes of Volkswagen and BMW, but the new factory should go some way to letting the electric vehicle manufacturer get a toehold in the continent.
At the moment, Volkswagen accounts for a quarter of all electric car sales across Europe, while Tesla’s sales are around half of that. It is expected that it could take over two years for car production at the new Tesla factory to reach its maximum output. This would see Tesla producing 500,000 new electric vehicles by 2025. Such a figure dwarfs the 450,000 electric vehicles produced globally by Volkswagen in 2021.
It comes at a time when Tesla is much in need of some good news. 2022 has proven to be a tricky year for the electric vehicle manufacturer with its stock price dropping from $1,199 at the start of January to just $764 in mid-February.
However, the market has reacted favorably to the good news about the new factory, and hopes are high that Tesla stock might keep rising to surpass the highs of $1,229 experienced in November 2021.
Much depends on how the global economy manages to twin factors of a still-virulent Covid-19 virus as well as the war in Ukraine. Last week saw the Federal Reserve introducing its first interest rate hike since 2018 in a bid to counteract an overheating economy.
But with fears about new strains of the virus and the potential catastrophe in Eastern Europe, it remains to be seen whether the Fed will introduce more interest rate rises in 2022. Such interest rate rises are widely seen as being harmful to the share value of ‘big tech’ stocks like Tesla. As such, the opening of a new Tesla factory couldn’t have been better timed.