Tesla’s production problems extend beyond China. Its German plant isn’t firing on all cylinders

As Tesla’s Shanghai operation roars back into action after painful COVID-related shutdowns, the electric-auto maker’s “gigantic money furnace” in Berlin, to use chief executive Elon Musk’s phrase, keeps flaring up.

Multiple media outlets have reported in recent weeks that the EV company faces hiring and supply-chain challenges at its new Berlin-area factory, where output is well behind the early days of its Shanghai counterpart. The challenges come as Tesla prepares for a preplanned, two-week shutdown of the plant for facility upgrades, which are designed to speed up productivity at the four-month-old factory, per the German publication TeslaMag. 

While Tesla officials expected a slow ramp-up at the Berlin factory, available evidence suggests it’s been a bigger slog than initially imagined. 

After several delays in opening the factory, in part resulting from environmental and regulatory concerns, workers in Berlin managed to produce just under 9,000 vehicles combined in April, May, and June, per figures compiled by Tesla production guru @TroyTeslike on Twitter. By comparison, the Shanghai facility pumped out nearly double that number in its first three months of operation. (Tesla expects to push about 500,000 vehicles out of the Berlin plant by the time it’s fully operational.)

In part, the lower Berlin total reflects Tesla’s global supply-chain issues, which forced German workers to pivot to lower-quality batteries for installation. 

But a Reuters report last month suggested Tesla remains off-track on its initial goal of hiring 12,000 employees for the plant by the end of the year. A local economy minister said in June that the company had about 4,500 staffers in Germany and planned to hire another 500 to 600 employees per month—a rate that must dramatically increase to approach the year-end target.

IG Metall, Germany’s largest automotive worker union, argued in late June that the hiring shortfall reflects Tesla’s low pay compared with that of its regional peers. 

“Many people would be interested in switching to Tesla, but ultimately decide against it, also because they sometimes earn considerably more in their current positions at other automotive companies,” regional IG Metall chief Birgit Dietze said at the time, according to Bloomberg.

While IG Metall has a clear incentive for making such a claim against notoriously union-unfriendly Tesla, the argument appears to carry some weight. TeslaMag, citing unnamed sources, reported Monday that nearly all employees would get raises totaling 6% in August. Tesla hasn’t commented on whether the pay increases are aimed at ramping up hiring.

Tesla’s most serious long-term business risk still rests in China, where a heavy-handed government wields enormous power over the company. 

The automaker reported Saturday that it had assembled about 254,700 vehicles globally in the second quarter of 2022, down from about 310,000 vehicles in the previous quarter, largely owing to government-mandated lockdowns in Shanghai. (Tesla shares, which are down 43% year to date, ticked up 1% in midday trading Tuesday.) At the same time, the Chinese government continues to heavily subsidize the nation’s EV sector, which could propel domestic rivals past Tesla.

Over the next several months, though, Tesla’s German operation will induce its fair share of medium-term headaches. 

Musk & Co. should eventually get that place humming, just as they did in China and at their California plant. As Fortune’s Christiaan Hetzner wrote in late June: “It’s only if these teething problems at Berlin and Austin continue deep into the fourth quarter that investors will probably need to be concerned.”

Getting to that point won’t be a smooth ride.

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Jacob Carpenter

NEWSWORTHY

A void at Vauld. Cryptocurrency lender Vauld halted withdrawals and other transactions on its platform Monday, joining several other digital assets companies struggling with liquidity issues, Bloomberg reported. The Coinbase-backed lender said customers withdrew about $200 million over the past three weeks as crypto values sank. Vauld CEO Darshan Bathija previously said in May that the Singapore-based company had about $1 billion in assets under management.

A Shanghai heist. An unknown hacker claims to have stolen billions of records from police in Shanghai, a cyberattack that, if true, would rank among the largest in history, the Wall Street Journal reported Monday. The hacker, who publicly posted part of the data, offered on a well-known cybercrime site to sell data tied to roughly 1 billion people for about $200,000 worth of Bitcoin. Several people in China contacted by the Journal confirmed the authenticity of information posted online, though cybersecurity experts said the hacker could be exaggerating the scope of the breach. 

Taking action. European Union lawmakers on Tuesday formally approved sweeping new laws designed to curb the power of the world’s largest tech companies, the Financial Times reported. The Digital Markets Act and Digital Services Act mandate that tech companies must increase their policing of online content, end targeted advertising based on several personal characteristics, and stop promoting in-house products above competitors’ on company-owned platforms. The two laws are set to take effect in late 2022, though skeptics worry that the EU will struggle to enforce the legislation.

Failure to launch. TikTok will not expand its live e-commerce feature to the U.S. and parts of Europe after a trial run launched late last year in the U.K. didn’t pan out, the Financial Times reported Tuesday. The ByteDance-owned social media unit hoped to build off strong e-commerce demand in home nation China, where consumers were open to buying goods advertised on a livestream directly through the TikTok app. TikTok had planned to add the feature on the app in the U.S., Germany, France, Italy, and Spain by the end of 2022.

FOOD FOR THOUGHT

No longer afraid. As the Chinese government eases its crackdown on the nation’s tech industry, some investors are ready to pile money back into the sector. The Information reported Monday that Sequoia Capital’s Chinese affiliate has raised $9 billion for four funds dedicated to Chinese tech companies, a sign of renewed interest in the republic. In fact, investors were ready to give $12 billion to the venture capital giant, far exceeding the original target of $8 billion. Chinese government officials have signaled in recent months that they plan to ease regulations and investigations designed to blunt the rapid growth of tech giants wielding outsize power in Asia.

From the article:

Some investors who are backing Chinese VC funds say China has promising startups in areas such as industrial robotics, enterprise software, healthcare and hardware development. 

The Chinese government’s policy priorities around promoting the development of advanced technology, including in semiconductors and artificial intelligence, has also given investors more confidence their newer bets could avoid Chinese regulatory challenges that have plagued consumer-facing companies such as China’s ride hailing leader Didi Global, whose VC backers included Sequoia China.

IN CASE YOU MISSED IT

Another major crypto lender might get acquired after pausing withdrawals: Here’s the latest from the “crypto credit crisis,” by Taylor Locke

Global video games market expected to fall for first time since 2015, by Chris Morris

Ruling could dampen government efforts to rein in Big Tech: “Every agency is going to face new hurdles in the wake of this confusing decision,” by the Associated Press

A new tax in the world’s largest crypto market has derailed trading and triggered a mass exodus of investors and startups, by Grady McGregor

As fintechs stumble, traditional banks will try to win back SMBs, by Andrew Jamison

Agile team structures may stunt innovation and creativity, study finds, by Aman Kidwai

Private equity will still outperform public markets in the next recession, by Pavel Ermoline

BEFORE YOU GO

Phoning it in. The cloud gaming revolution might not be made for mobile. In a rather scathing takedown of the technology, the Verge’s Alex Cranz argues that some games streamed on the cloud are too dang hard to play on your phone. The on-screen movements are too intricate, the controllers are too clunky, phone batteries aren’t strong enough to withstand extensive use, and a simple phone call could boot you from a game. Rather, Cranz recommends that mobile players invest in a dedicated handheld gaming device. Smartphones, Cranz writes, are “great for a lot of things—cloud gaming isn’t one of them.”