Musk says Giga Berlin, Giga Texas are losing Tesla billions of dollars

Is this why Tesla needs to cut salaried jobs?
Ameya Paleja
Giga BerlinTesla

Tesla CEO Elon Musk has called the car manufacturer's new factories in Berlin and Austin 'gigantic money furnaces' that are losing billions of dollars, while the production stays down, Bloomberg reported

As the Tesla brand has grown in popularity, the company has worked to establish more factories to increase its production capacity and also ease the distribution of its cars in its biggest markets. Giga Berlin has been in the works since 2019, and the factory began production earlier this year with an estimated capacity to build 500,000 cars annually, in the future. 

The construction of Giga Texas in Austin began shortly after it was announced in 2020, and the factory also went online in April this year. With plans to produce 1.5 million cars in 2022, these new factories also need to pump up their production rates to match those at Tesla factories in California and Shanghai. However, the company has faced some roadblocks. 

Problems at Tesla's factories

During an interview with Tesla Silicon Valley Owners Club, Musk provided some details of the problems faced at Tesla's factories. At Giga Texas, Tesla had planned production of its Model Y SUVs with the new 4680 cells and structurally integrated battery pack. These are a radical new design in battery cells that promise higher energy storage and thus greater range for an EV while reducing costs.

The company has struggled to ramp up production with these battery cells and, therefore, in April, decided to use its 2170 cells instead to keep up the production. However, the tooling required to bring this change into effect has been stuck in China, Musk said during the interview.

Tesla's Shanghai plant was also among thousands of factories that faced shutdowns in March due to the rising number of COVID cases in the region, bringing production to a grinding halt. Even after restrictions were lifted in the region, supply chain issues have forced the Shanghai plant to slow down its production. 

While Musk did not specify specific problems in Berlin, he did say the factory, along with Giga Texas, were money furnaces. 

Related to job cuts?

The timing of this Musk interview is crucial. Though released recently, it was recorded on May 31, just days before Musk declared that Tesla was going to lay off 10 percent of its workforce. This was probably one of the things on Musk's mind when he spoke about his "super bad feeling." 

In the past, Musk has warned that a single Cybertruck could cost a million dollars if not produced at scale. Tesla factories are built to produce at a massive scale, but if production does not reach those levels, they will bleed a lot of money. 

Musk went on to add that supply chain issues caused by the pandemic are far from over, and his current focus is to keep these factories operating so that people can be paid and the company does not go bankrupt. Musk expects the issues to be addressed soon but also added that getting these new factories to high volume production could take more effort than was needed to build them in the first place, Bloomberg said in its report. 

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