Musk also revealed that the site will include a battery line and an R&D center, according to CNBC.
Bringing a Tesla plant to Europe has been on Musk's mind for a few years now; until now, it seemed that the United Kingdom had been one of the CEO's locations of choice.
"Tesla's decision to build an ultramodern factory for electric cars in Germany is further proof of the appeal of Germany as an automotive hub", Economy Minister Peter Altmaier said in a statement on Wednesday.
Berlin's minister in charge of economic affairs, Ramona Pop, said the move could create 6,000 to 7,000 jobs in production alone, with hundreds or even thousands more in areas such as design, software or research.
The factory will be located in the German state of Brandenburg, an economically relatively weak region that produces a lot of renewable energy, but will also be affected be the country's coal exit because it is home to a lignite mining region.
But Schmidt warned the Californian risks running into "bureaucratic hell" in Germany, with Musk's new site just a few kilometres (miles) from the Berlin-Brandenburg airport.
Tesla is estimated to have some 30 per cent of the European market for battery-powered cars.
Europe is a strong market for EVs: with one Tesla model recently became the most sold vehicle there.
Musk also paid $20million to the US government over alleged securities fraud after claiming he had secured funding to take the company private.
The effort has been a long time coming.