Tesla CEO Elon Musk said during an award ceremony in the German capital Tuesday evening that "we've decided to put the Tesla Gigafactory Europe in the Berlin area."
The company will also set up an engineering and design center in Berlin, Musk said at the Golden Steering Wheel event. He wrote on Twitter that the new plant "will build batteries, powertrains & vehicles, starting with Model Y."
German Economy Minister Peter Altmaier called the announcement a "glorious success" for the country's attractiveness as an auto industry location, especially in the race to develop and produce electric cars and batteries.
Altmaier said there had been competition for the plant among European countries in recent months, but denied that the government had offered any financial support to Tesla.
"So far, subsidies haven't been discussed," he told reporters in Berlin. "It's clear that Tesla will be treated the same way as all other automobile companies if it invests in Germany and creates jobs here."
Still, Tesla's announcement comes just a week after German officials and auto industry leaders agreed to increase by half the existing government incentives for electric vehicles with a list price of up to 40,000 euros ($44,500) — an incentive Tesla can expect to profit from indirectly.
The subsidy will also be extended from the end of 2020 currently to the end of 2025, and the government and industry agreed to aim for 50,000 publicly accessible charging stations nationwide by 2022.
Musk said that the plan is for the factory to be built near Berlin's new airport, which is located just outside the city limits in neighboring Brandenburg state and currently slated to open next year after years of delays.
"We definitely need to move faster than the airport, that's for sure," Musk said.
Germany, home to some of the world's biggest automakers, has been overtaken by the United States, China and some European neighbors in the adoption of electric vehicles.
In July, Tesla announced plans to build its third Gigafactory — the first outside the U.S. — in Shanghai.
German automaker Volkswagen, which last week began mass production of its ID.3 electric car, welcomed rival Tesla's decision to build the factory on its home turf.
"I'm happy that Elon is, let's say, pulling us, but I think the German industry is really now strongly investing," said Volkswagen CEO Herbert Diess, speaking alongside Musk at Tuesday's event. "And we will keep you alert."
Auto industry expert Ferdinand Dudenhoeffer said additional competition could benefit German automakers.
"This is good news for VW, Daimler and BMW," said Dudenhoeffer, who heads the Center Automotive Research.