With multi-billion dollar investments across all continents, VW and Tesla are battling for EV supremacy

In the battle to dominate the emerging battery electric vehicle market, two industry giants are trading blows in each other’s home markets.

This week, Tesla officially started production at its new “Gigafactory” in Berlin. The plant is located just one hour from the Wolfsburg headquarters of Volkswagen AG, Europe’s largest automaker and the current leader in electric vehicle sales in Europe.

But the German automaker is leading the fight in the United States, a market where Tesla is the overwhelmingly dominant maker of electric vehicles. VW this week announced plans to invest $7.1 billion in North America, where it will add new production capacity for all-electric models like the ID.Buzz microbus.

VW and Tesla have done little to hide their goals of dominating the expanding market for battery-electric vehicles. In a tweet marking the launch of the first production vehicles at the Berlin plant, Tesla CEO Elon Musk said the goal of “part 3 of his company’s master plan…will be to move to an extreme size”.

Tesla already has four assembly plants in place, including the original one in Fremont, California, and another in Shanghai that began producing vehicles in 2019. The new plant in Berlin and a fourth in Texas will roughly double close to its production capacity. Musk has often said that he plans to add a number of other plants in the coming years.

For its part, Volkswagen has committed more money to going electric than any other automaker, raising the figure to more than $100 billion by 2030. This will fund the move away from internal combustion engines – which are powered by old-school gasoline – for 14 different brands. This includes entry-level Seats and Skodas to exotic brands such as Porsche and Lamborghini. Its Audi and Bentley brands have already set out plans to be 100% electric by the end of this decade, with others including flagship brand Volkswagen expected to follow soon after.

VW already has a growing array of electric vehicle production facilities operating in Europe and China. It has been slow to expand its manufacturing footprint in the US market, beginning to import the German-made ID.4 in late 2020. It has just completed an assembly plant expansion in Chattanooga, Tennessee, which will produce the ID.4, but its aspirations don’t stop there.

“This deep commitment to our localized capabilities will transform Volkswagen into one of the leading electric vehicle brands known for its commitment to innovation, quality and the communities we call home,” said Scott Keogh, president and chief executive officer. Volkswagen Group of America Inc. management in a statement this week.

Tesla and Volkswagen officials have made clear their intention to reverse each other in their respective home markets. Tesla is the dominant player in the United States, producing two of the four best-selling battery-electric vehicles on the market. But Volkswagen expects 55% of its U.S. sales to be fully electric vehicles by 2030.

In Europe, VW has a 25% share of electric vehicle sales, according to data from the Association of European Automobile Manufacturers, compared to Tesla’s 13%, Brinley said. But the Berlin plant gives the company the production capacity needed to fuel a strong growth spurt.

IHS Markit analyst Stephanie Brinley, however, plays down the idea that this is a battle of electric titans.

“There are only benefits for both,” she asserts, as they expand their presence in North America, Europe, China and other markets. Electric vehicles represent only a small fraction of global demand – just 3% in the United States, although some markets, such as Norway and Britain, have climbed solidly into the double digits.

“The market for electric vehicles is on the rise, so there will only be opportunities for growth” ahead, she added.

Of course, Tesla and VW are by no means the only automakers hoping to capitalize on the shifting market. GM plans to launch at least 30 all-electric vehicles globally by 2025, including the new Cadillac Lyriq it started building this week. GM intends to move to 100% electric vehicles by 2035. Volvo plans to achieve this goal before the end of this decade. And major players such as Ford, Honda, Toyota and the Hyundai Motor Group are all moving in similar directions.

In the short term, at least, demand for electric vehicles could exceed production capacity, according to Brinley and other auto analysts.