The facility will include an engineering and design centre and will be used to manufacture cars, batteries and powertrains. The first car to be built there will be the upcoming Model Y small SUV, according to Musk.
"Everyone knows that German engineering is outstanding, and that's part of the reason we are locating our Gigafactory Europe in Germany," he said.
Tesla has previously said its European factory would open in 2021, although Musk is known for announcing optimistic dates for building facilities from scratch.
The announcement dashes hopes that the facility could be constructed in Britain, something Musk had previously suggested was likely.
In 2016, prior to the Brexit vote, he said: “We have a lot of respect for the British automotive engineering talent. Just look at Formula 1: it amazes me how much British talent there is in that. We're likely to establish a Tesla engineering group in Britain at some point in the future.”
Tesla faces increasing competition from established car makers but is now on-track to open new Gigafactories in China and Europe, adding to its established US operations to give it a global manufacturing base.
At present, 16 lithium ion battery cell plants are confirmed or due to begin operations in Europe by 2023, underlining the level of competition that Tesla faces in future.
Musk made his announcement while he was on stage at an awards ceremony with Volkswagen Group boss Herbert Diess. When asked why other car makers were lagging in the race to build electric cars, Musk said: "I don't think Germany is that far behind." Volkswagen will launch the ID 3 next year and has set the goal of selling more than one million electric cars across 20 electric model lines by 2025.
Tesla has yet to record a full-year annual profit, but it has posted positive quarterly results in the past 12 months. In order to boost profitability, it has undergone a significant cost-cutting project in 2019, both improving its production processes and cutting jobs.
The road ahead for Tesla