Tesla’s Gigafactory 4 Is Opening a Path to Europe’s Compact Car Market

Tesla's Gigafactory 4 will be starting its operations with the production of the Model Y. Tesla hasn't announced why GF4 will be starting with Model Y production, but it may, perhaps to some degree, have something to do with its future plans for a C-segment vehicle, which are very popular in Europe.

Musk said Tesla could unveil a compact car or C-segment vehicle in less than five years during the Q2 2018 annual shareholders meeting. According to Autocar UK, Musk did not speak about a potential B-segment car by Tesla. Instead, Musk's statement suggested that Tesla may be planning to release a compact car in the future, or at least within Musk's five-year timetable.

A compact electric car would compete with EVs like the Nissan Leaf, BMW i3, and the VW ID.3, all of which are smaller in size compared to the Tesla Model 3. Given the timeline shared in Musk's statement, Tesla seems to be planning on releasing a compact car by 2023, less than four years from today. Tesla's compact car has barely been mentioned since the Q2 2018 shareholders meeting. However, Gigafactory 4 in Berlin may have opened a path for a C-segment Tesla in the future.

According to Musk's recent tweet, GF4 will be manufacturing batteries, powertrains, and working on the Model Y to start. Tesla's crossover shares 75 percent of its components with the Model 3 sedan, so the Berlin facility will not be starting from scratch.  

$TSLA Europe Gigafactory (GF4) will be in Germany near the site of the new Berlin airport. Also will open an engineering and design center in the Berlin area. Oh and the Model 3 won the “Golden Steering Wherl award. :) pic.twitter.com/W9BHlaJfSK

— Serious Callers Only (@EthicsGradient) November 12, 2019

The transition from Model S and X to the Model 3 was difficult for Tesla partly because the vehicles had different platforms. The all-electric car maker had to reorganize and reimagine its assembly line and operation processes for the Model 3. It won't need to do that for the Model Y since the crossover uses a similar platform as Tesla's midsize sedan.

If Gigafactory 4 starts off its operations smoothly, Tesla will likely have the energy and time to develop a C-segment car that would be highly competitive in Europe's compact car market. By 2021, Tesla will have its hands full with the production of the Model S,3, X, and Y. However, Tesla will likely be able to produce vehicles to meet demand without spreading itself too thin thanks to Gigafactory 3 and 4 in Shanghai and Berlin—respectively.

Once it is fully-operational, Gigafactory 3 will handle supply for Model 3 and Model Y demand in China—one of the biggest car markets in the world. The Shanghai factory will alleviate some of the pressure on Fremont and Gigafactory 1 since the facilities produced both vehicles and battery packs for the US and worldwide market prior to GF3's construction.

Gigafactory 4 may do the same for the Model Y in Europe. Tesla's Berlin factory is expected to start production in 2021. By that time, Model 3 demand should be stable, while the Model Y's would likely have increased. However, Fremont and Shanghai will also be making Model Y units at that time. So GF4 will have more space and time to concentrate on other, upcoming Tesla products, perhaps even a C-segment vehicle.

This is what i think it could be the future compact TESLA MODEL C (PS by me) @Tesla @lexiheft @elonmusk @FredericLambert @slcuervo @ResidentSponge @foroelectricos @teslanomicsco @InsideEVs @ClubTeslaES @Model3Owners @TeslaMotorsClub @TeslaParaTodos pic.twitter.com/yORhBqF0Pp

— Miguel Massé (@MiguelMasse) June 10, 2018

Tesla's decision to start Gigafactory 4 with Model Y production suggests that Tesla may be freeing up part of GF4's capacity for a possible expansion to other production initiatives. After all, even considering Tesla's massive growth over the years, the electric car maker is actually competing in just a few markets in the automotive industry.

The flagship Model S and Model X compete in the premium sedan and SUV market, while the Model 3 is competing in the midsize sedan segment. Even after the Model Y takes on the crossover market, there are still several segments that Tesla has not tapped. The C-segment, with its affordable vehicles and large production numbers, is one of these. 

Considering Elon Musk's recent tweet, Gigafactory 4 may just be the perfect facility for the job. The all-electric automaker may have adopted a two-pronged approach with its Model 3 and Model Y production to mitigate any future setbacks caused by high demand to make room for more vehicles in its fleet. Tesla's disruption has been felt by the auto industry with premium vehicles like the Model S and Model X, and it has continued as the company entered the midsize market with the Model 3 and Model Y. With a C-segment EV, Tesla's disruption would likely reach levels that are yet unseen.