By David Forest, editor, Strategic Investor
Tesla’s latest Gigafactory is a monster.
The facility – just outside of Berlin, Germany – is enormous. It cost $5.5 billion to build. That’s the biggest investment in German automotives in decades.
The Gigafactory will house a workforce of 12,000 people. It’s going to produce 500,000 Teslas annually. That’s more vehicles than German car giant Volkswagen makes around the world.
Elon Musk himself attended the grand opening this past week. It was hailed as a major step forward for Tesla, Europe, and the electric vehicle (EV) industry.
But there’s a huge problem no one is talking about.
It could derail all of Tesla’s production here…
Energy Costs Are Through the Roof
This problem started many years ago.
That’s when European lawmakers started betting on renewable energy. They shunned nuclear, coal, and natural gas. Instead, they pushed for wind and solar.
It was a grand idea. But the results came up short. Last year, the Netherlands government all but admitted green energy has been a failure. They simply couldn’t get the juice needed to run a massive power grid.
At the same time, environmental pressures made things worse.
The Netherlands sits on one of the biggest natural gas fields in the world. It’s called Groningen, and it holds huge gas reserves. It’s by far the largest in Europe and one of the biggest in the world. You can see the huge red blob in the snapshot below of my World Energy Atlas.
The Groningen natural gas field (green circle) is a monster-sized energy reserve… which is now completely lost
For decades, Groningen supplied a big chunk of local gas demand. The field shipped gas to Netherlands users. It also supplied neighboring countries like Germany.
Germany’s Energy Supply Is Tapped Out
Then, last year, that came to a halt. Netherlands authorities decided to close Groningen completely.
There’s plenty of gas left in the field. The shutdown decision stemmed purely from environmental concerns.
It’s left Europe in the lurch for energy. The Netherlands government recently announced an emergency pivot to nuclear energy. They’re running on empty when it comes to power.
This set off an energy crisis across Europe. Last summer, European natural gas prices started rising. They doubled, then doubled again.
Today, European gas sells for about $37 per MMBtu (metric million British thermal unit). U.S. gas, by comparison, is selling for about $5. Europe is paying 650% more for gas.
Some of Europe’s gas goes to home heating. But it’s also used in power generation.
That means power is getting incredibly expensive for European users. European utilities are going bankrupt left and right, because costs to generate power jumped so much.
We’ve seen industrial facilities across the continent shut down due to high electricity costs. That doesn’t bode well for massive factories like Tesla’s new German compound.
And it gets worse.
All of those energy problems in Europe were happening before the war in Ukraine broke out.
The Russian invasion took Europe’s energy problems to a new level.
Germany gets 40% of its natural gas supply from Russia. Putin has threatened to use this as a weapon. If he turns off the taps, Germany could go cold and dark.
There aren’t many other options. German regulators signed emergency deals this month to build natural gas import terminals. They want to ship gas in from the U.S., or even Qatar.
Despite working at breakneck speed, those gas import facilities won’t be ready until 2024. What’s Germany going to do for emergency supply in between?
Prices Will Keep Going Up… And Hit Your Wallet Directly
There isn’t much of an answer. That’s a massive problem for big energy users like Tesla’s Gigafactory.
Tesla planned this facility long before Europe’s energy problems hit flashpoint. At the time, current $30+ gas prices were unimaginable.
Now, they’re reality. That means costs at the Gigafactory are going up. That could well pass through into higher costs for vehicles made here.
Just this month, Tesla raised prices on U.S. models by up to 10%. That’s in a country with tame energy prices.
With Europe’s energy crisis biting, the price hikes could be higher…
Can You Escape With Your Wealth Intact?
Inflation is hitting everywhere. Energy spikes are here to stay. Policy cutting energy supplies means higher costs to make almost everything.
Get ready for higher costs of living. Everything from Teslas to food to electronics is going up.
Inflation is the number one problem facing investors. If you’re worried, there is something you can do.
I’ve created a briefing on everything you need to know to protect yourself from rising costs. I urge you to take five minutes right now and have a look.
It might make the difference between prosperity and ruin in these uncertain times. Give yourself the best chance at protecting – and potentially growing – your wealth by going right here.
Keep walking the path,
Editor, Strategic Investor