Musk also revealed that the site will include a battery line and an R&D center, according to CNBC.
Musk announced plans for a UK-based research centre as long ago as 2014 but those plans have since been shelved.
In the March following the Grohmann acquisition, the firm's founder, Klaus Grohmann, left the company, reportedly because of a disagreement over focusing on Tesla projects rather than those of German-based rivals Daimler and BMW, chatty sources told Reuters at the time, although this was never confirmed. "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". He had previously said that if there was enough demand a factory could subsequently be built in the United Kingdom, although Tesla planned to open its first European factory on the continent. Speaking to Auto Express, he said that Brexit did play a role in Tesla choosing Germany as the location of its gigafactory.
The subsidy will also be extended from the end of 2020 to the end of 2025, while the government and industry also 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 now slated to open next year after years of delays.
But there is also no doubt Musk's move "puts pressure on the Europeans and the Germans", said Christoph Schalast, professor at the Frankfurt School of Finance and Management.
Musk said during the Q3 briefing earlier this month that the Shanghai factory had created a template that could be followed in Europe - although we note Tesla is still waiting for final licensing and government approval in China.
Tesla accounts for nearly one in three electric vehicles sold in western Europe, and worldwide sales of its Model 3 have already overtaken those of BMW's 3 Series sedans, although "German sales remain disappointing", according to analyst Matthias Schmidt. "And we will keep you alert".
However, Musk's decision is not a shock, says Professor David Bailey, an automotive industry expert at Birmingham University.