Tesla share: Falling groundwater levels around the Gigafactory could pose problems for Tesla

• Legal action by environmental groups against Tesla’s water rights permits
• Increase in production capacity essential for the growth of the US group in Europe
• Dramatically falling groundwater levels could become a problem for Tesla

While Elon Musk dismissed the concerns of many residents about the drinking water supply in October 2021 as “ridiculous”, the falling groundwater level in Brandenburg’s sandy soil is now threatening to further impede the opening of the Tesla Gigafactory Grünheide near Berlin. Tomorrow, in a first round of negotiations before the administrative court in Frankfurt (Oder), environmental organizations will appeal against the approval of the Brandenburg State Environment Agency for water extraction, which is particularly important for the Tesla factory.

Court proceedings could further impede the start of production in Grünheide

With a target production of 500,000 vehicles per year, Tesla expects water consumption of around 1.4 million cubic meters for its Gigafactory, which roughly corresponds to the requirements of a city with 40,000 inhabitants. According to the state government of Brandenburg, Tesla’s factory, two-thirds of which is located in a water protection area, will not endanger the drinking water supply for the approximately 170,000 inhabitants of the catchment area. Many local residents, NABU and the Green League have a different opinion and point to the rapidly falling groundwater level as a result of global warming. The two environmental organizations are having the court examine whether the approvals for higher flow rates from the Eggersdorf waterworks issued by the State Environment Agency on February 28, 2020 are illegal (file number VG 5 K 469/21). If the plaintiffs are right, it will lead to a lengthy restructuring of the water infrastructure and could cause a further delay in the start of production – which would be poison for Musk’s fast-paced future plans.

Tesla’s growth can only be achieved through rapid production expansion

Tesla’s valuation remains extremely high at a current P/E of 176, even though the stock is down 18 percent so far this year. The current price of Tesla shares can only be justified by the rapid growth of the US automaker, which in turn requires the rapid expansion of production capacity. As competitors such as Mercedes-Benz, Volkswagen and, increasingly, BMW ramp up their investments in electric cars, Tesla’s production expansion is crucial, especially in the fast-growing and competitive European market. For example, Credit Suisse explicitly justified its price target, which it recently increased from USD 830 to USD 1,025, with the start of production in Grünheide. So far Tesla has only produced its models in California and Shanghai, the rapid opening of factories in Brandenburg and Texas are important cornerstones in Tesla’s future concept.

Start of production in Grünheide probably in March

Musk receives backing for his Gigafactory from state politics. The Brandenburg Economics Minister Jörg Steinbach (SPD), known as “Mr. Tesla”, in particular supports Musk’s construction project, which is creating thousands of jobs in the industry-poor Brandenburg region. Thanks in part to the political support, according to information from the Tagesspiegel, the official inauguration of the Gigafactory is to take place on March 22nd or 23rd – later than the originally planned start of production in July 2021, but with a construction time of just under two years at a breathtaking pace by local standards. Chancellor Olaf Scholz (SPD) and Economics Minister Robert Habeck (The Greens) have already announced that Elon Musk will also fly in.

Falling water tables threaten Tesla’s water supply

But even if Tesla’s Gigafactory should be approved and production of the Model Y series begins, the low water supply will continue to accompany the US group. Car manufacturing requires an enormous amount of water, with a Tesla car using an average of 3.1 cubic meters of water, Bloomberg reports. In order to guarantee such an amount of water supply for the coming years of production, the responsible waterworks in Eggersdorf have to invest a lot of money in new infrastructure, which in turn requires the permission of the local authorities. The constantly falling groundwater level in Brandenburg, one of the driest regions in Germany, is therefore not only a cause for concern for various nature conservation organizations and local residents. Rather, the problematic water situation on site has the potential to adversely affect Tesla’s production in Grünheide in the long term.

Meanwhile, anticipation for the possible imminent start of production in Germany prevails among investors: Despite the difficult market environment, Tesla shares have increased significantly in the past few trading days and were last listed at 879.89 US dollars (as of the closing price on March 2, 2022). .

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