German Authorities Approve Elon Musk’s Berlin Gigafactory, Removing ‘Major Overhang’ on Tesla Stock

German authorities gave approval on March 4 for Tesla to officially begin production at its Gigafactory Berlin-Brandenburg, which one analyst says “removes a major overhang on the stock over the past few months.”

The red tape and headaches seen around the delays/disputes opening up this flagship European factory have been frustrating for investors to watch unfold and left many on the Street doubting whether Giga Berlin would ever open, Wedbush Securities analyst Dan Ives wrote in a March 6 note to investors received by GOBankingRates.

“We cannot stress [enough] the production importance of Giga Berlin to the overall success of Tesla’s footprint in Europe and globally, as the current Rubik’s Cube logistics of producing cars in China at Giga Shanghai and delivering to customers throughout Europe was not a sustainable trend,” Ives wrote.

Tesla stock was up 6.9% in pre-market trading on March 7.

Ives wrote that the Berlin factory establishes “a major beachhead” for Tesla in Europe with the potential to expand production to approximately 500,000 vehicles annually, with Model Y front and center, over the coming 12 to 18 months.

“With the race for electrification in Europe hitting another gear and competition for EVs increasing from every angle with VW among others doubling down on its EV ambitions, we view Giga Berlin as a major competitive advantage for Tesla to further build out its supply footprint in this key region,” Ives wrote.

The New York Times reported that the announcement was critical for Tesla. CEO Elon Musk had raced to begin construction of the $7 billion plant two years ago without waiting for the German bureaucracy — a move that risked Tesla having to tear down the plant had the approval not been secured.

Amid this win, there is still a caveat for Tesla. Overall supply remains very tight, a situation Ives describes as “a high-class problem of demand outstripping supply with this issue now translating into ~5-6 month delays for Model Ys and some Model 3s in different parts of the globe as of early March.” Ives added that the key to alleviating these issues is centered around the key Giga openings in Austin, with a grand opening next month, and Berlin, which will help solve the bottlenecks of production for Tesla globally.

“The chip shortage remains a moderating issue for Tesla and the global auto industry into the rest of 2022, although clearly the volatile and heartbreaking invasion in Ukraine and its impact on broader Europe remains an issue the Street will closely watch in the coming weeks/months.”

While supply chain issues were a major drag on overall unit growth for Tesla in 2021, Ives said Wedbush believes that this dynamic will significantly moderate, with potentially 1.5 million+ units now within reach annually for 2022.