BERLIN (Reuters) - The German government on Wednesday welcomed Tesla’s decision to set up shop in Berlin, a move it believes will turbo-charge the country’s shift into the electric car era even as costs of running a business in Europe’s largest economy remain high.

FILE PHOTO: German Economy Minister Peter Altmaier attends the weekly cabinet meeting at the Chancellery in Berlin, Germany, October 2, 2019. REUTERS/Michele Tantussi/File Photo

The decision, announced by Tesla TSLA.O Chief Executive Elon Musk late on Tuesday, will see the U.S. electric vehicle pioneer build its first European factory and design centre near Berlin.

The move boosts Germany’s efforts to position itself as an electromobility and battery cell production centre and will allow Tesla to produce cars “Made in Germany” as it seeks to burnish its reputation for reliability and sporting prowess.

The investment also cuts against the grain of troubled German trade ties with the United States, where President Donald Trump is threatening to hit the German auto sector with tariffs on cars imported to the United States.

“We see it as recognition of Germany as a location for making cars,” Economy Minister Peter Altmaier said of Tesla’s investment.

“We think we now have the chance, in the coming years, to become an important international centre in this future-oriented sector,” he said.

The plan is also a shot in the arm for Germany as a centre for manufacturing after BMW and Mercedes in recent years chose to build new factories in Hungary, where production costs are lower, and after its auto industry was hit hard by Volkswagen’s admission in 2015 that it cheated U.S. diesel emissions tests.

Germany’s auto sector retains a reputation for top quality, however, and Berlin - which lost most of its manufacturing industry after the division of the city following World War Two - has morphed into a tech hub in the last decade.

Government spokesman Steffen Seibert said there had been no meeting between Musk and Chancellor Angela Merkel to seal the deal, but added recent measures to boost electric mobility made Germany a more attractive site.

The investment comes after Germany in September unveiled tax incentives to push electric cars and infrastructure after the government acknowledged it would miss a target to get one million electric cars on the road by 2020.

Now the government wants to have 10 million electric vehicles and 1 million charging stations by 2030.

Germany’s environment ministry said the country’s renewable energy drive was also attractive for a company like Tesla. “Tesla is a company that would like to have its energy come exclusively from renewable energy and Germany is a country with a clear goal (on renewables),” a spokeswoman said.

‘NEW GOLDEN AGE’

Tesla’s proposed factory will be within commuting distance of Poland, where labour costs are cheaper, a rival manufacturer - who also looked at the site - told Reuters.

Still, Berlin’s minister in charge of economic affairs, Ramona Pop, told public broadcaster RBB there had been talks about creating 6,000 to 7,000 jobs in production alone, with hundreds or even thousands more in areas such as design, software and research.

Brandenburg premier Dietmar Woidke said he had “lobbied for this for a long time”. His state surrounding Berlin has, like much of the former Communist East, faced structural challenges since reunification in 1990.

Any official support given to Tesla would be in accordance with European Union rules, Woidke added.

“Subsidies have not yet been discussed,” Altmaier added. “It’s clear that Tesla - if it invests in Germany and creates jobs here, will be treated like all other companies in the automobile and automotive industry.”

For a company yet to prove it can be consistently profitable, investing in high-cost economy is not without risks.

Alexander Ulrich, industry policy spokesman for the far-left Linke, said his party would support subsidies to Tesla, but only it adhered to “collective wage agreements and worker participation (in management) ... from day one.”