Musk has teased the prospect of a European arm of the company since 2016, suggesting somewhere near the Benelux border would be suitable.
He wrote on Twitter that the new plant "will build batteries, powertrains & vehicles, starting with Model Y".
"We are also going to create an engineering and design centre in Berlin because I think Berlin has some of the best art in the world", Musk said.
Tesla said it would build its next factory near Berlin, along with an engineering and design center. The announcement comes just as Tesla has started selling cars built at its new plant located in Shanghai, China.
Aerial photo taken on shows the tesla gigafactory at night in Shanghai, China.
No one from Tesla was immediately available to comment.
Tesla announced last month that it expected to start production in Europe in 2021. Speaking to The Telegraph, he said that he did not see Brexit being likely to have a "significant impact" on Tesla's long-term objectives.
Our sister site PV Tech reported recently that Tesla's solar performance has rebounded in the third quarter of this year, seemingly despite the decision to close the SolarCity door-to-door sales network and cut other customer acquisition costs by putting solar products in Tesla stores, while stationary energy storage also continues to grow.
Back in late 2016 Elon Musk said Brexit wasn't really an issue when it came to expanding into the United Kingdom and Europe.
Germany's biggest labor union, the influential IG Metall, welcomed Tesla's plan. "Brexit uncertainty has stymied investment in the automotive industry, which is down by over 80pc in the last three years".
In addition to Brexit, Bailey highlighted that another factor could have influenced Musk's decision.
Having a production base in the European Union will make it easier for Musk to serve the huge EU market, and avoid any future tariff issues between the USA and Europe.
"In contrast the German government is committing big support for EV in the coming years", said Bailey.