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Elon Musk told an award ceremony crowd that Tesla Inc. plans to build its next factory near the German capital of Berlin, sending a stark message to some of the world’s most prestigious automakers that he’s headed for their home turf.

The electric-car maker also will establish an engineering and design center in Berlin near the new airport, Tesla’s chief executive officer said late Tuesday. He made the announcement while accepting an award for the company’s Model 3 sedan.

Musk, 48, is laying the groundwork for his next plant just as Tesla is preparing to start sales of cars built on the outskirts of Shanghai. Building a European factory will up the stakes for established automakers already facing a serious threat from the electric upstart. Regulators are increasingly mandating that companies build battery-powered vehicles despite manufacturers struggling to produce them profitably.

Morgan Stanley analysts led by Adam Jonas wrote in a recent note that Germany would be the “logical choice” for the so-called Europe gigafactory. The country “is the heart of the global luxury-auto market, with an economy dependent on internal-combustion tech and a government focused on climate change,” Jonas said.

Chancellor Angela Merkel’s government and local automakers have agreed to boost incentives for EVs, intensifying Germany’s effort to move away from the combustion engine to reduce exhaust emissions. Still, building vehicles in a country that has one of the highest labor and energy cost worldwide is bound to be a major challenge, especially as European customers expect a close-knit network of dealers and repair shops to handle maintenance work.

With assistance from Christoph Rauwald, Catherine Larkin and Dana Hull.

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