Tesla losing billions in cash-burning plants in Germany and US, Elon Musk says

Company's new factories in Berlin and Austin are 'gigantic money furnaces' suffering supply chain bottlenecks

Construction during the expansion of the Tesla factory in Gruenheide, Germany. The $5.4 billion facility has capacity to make 500,000 cars a year. Bloomberg

Elon Musk said new Tesla plants in Germany and Texas are losing “billions of dollars” as the electric vehicle maker tries to increase production.

“Both Berlin and Austin factories are gigantic money furnaces right now,” Mr Musk said in a video interview with Tesla Owners of Silicon Valley that was posted online on Wednesday.

The comments, part of a broader discussion filmed on May 31, offer new insight into Tesla’s operations in the days leading up to Mr Musk’s decision to cut costs by laying off employees. The reductions will affect about 10 per cent of Tesla’s salaried workers over the next three months, or about 3.5 per cent of its global workforce, Mr Musk told Bloomberg at the Qatar Economic Forum on Tuesday.

The billionaire also said in the interview that Tesla has struggled to quickly increase production in Austin of Model Y SUVs that use the company’s new 4680 cells and structurally integrated battery pack.

To keep up with high demand for its cars, the company said in an April letter to shareholders that it would also make Model Y SUVs with the older 2170 cells in Austin — but the tooling required for that got stuck in China, Mr Musk said.

“This is all going to get fixed real fast, but it requires a lot of attention, and it will take more effort to get this factory to high volume production than it took to build it in the first place,” Mr Musk said of the Austin factory. Berlin is in a “slightly better position” because Tesla outfitted it to build cars with the 2170 cells, he said.

Tesla has spent the past few years prioritising the building of new factories in locations around the world to make it cheaper to distribute cars in its biggest markets. More factories also give Tesla a higher ceiling for how many cars it can build per year.

Tesla’s difficulties in getting the Austin and Berlin factories up and running piled up as the car maker was also dealing with Covid-related lockdowns at its Shanghai plant, Mr Musk said.

At the time of the interview, Tesla was still trying to recover from a dramatic drop in production caused by the Chinese government’s restrictions, as well as persistent supply-chain headaches.

“The past two years have been an absolute nightmare of supply-chain interruptions, one thing after another, and we’re not out of it yet. Overwhelmingly, our concern is how do we keep the factories operating so we can pay people and not go bankrupt,” Mr Musk said. “The Covid shutdowns in China were very, very difficult, to say the least.”

Since the interview, Tesla has more than tripled production at its plant in China.

Morgan Stanley analyst Adam Jonas on Wednesday cited the China disruptions in part as he lowered his price target on Tesla to $1,200 a share from $1,300. He maintained his overweight rating on the car maker.

Tesla’s shares closed down less than 1 per cent to $708.26 on Wednesday in New York.