* Tesla also to build design centre in Berlin - Musk
* 'We lobbied for this for a long time' - state premier
* Thousands of jobs to be created in Berlin area - official (Adds Musk, union comment, byline)
BERLIN, Nov 13 (Reuters) - U.S. electric vehicle pioneer Tesla will build its first European factory and design centre near Berlin to produce cars "Made in Germany" as it seeks to burnish its reputation for reliability and sporting prowess.
Tesla Chief Executive Elon Musk made the announcement at a prestigious German car awards ceremony late on Tuesday and said its new plant would make batteries, powertrains and vehicles - starting with its Model Y sports utility vehicle.
"Everyone knows German engineering is outstanding for sure. You know that is part of the reason why we are locating Gigafactory Europe in Germany," Musk said at the Golden Steering Wheel awards in Berlin.
Tesla's move into Europe comes at a challenging time for the Silicon Valley trailblazer which is investing heavily in new factories and new products, such as a pickup truck, but has yet to prove it can be consistently profitable.
Its plan to start production in another continent also comes as the auto industry struggles with export restrictions in the form of trade tariffs. Besides Europe, Tesla is opening a factory in Shanghai, built with Chinese state support.
While Tesla will be taking on BMW, Mercedes and Volkswagen on their home turf as they start rolling out zero-emission vehicles, the move fits with the German government's plan to transform the country into a centre of excellence for electric mobility.
"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.
'SETS AN EXAMPLE'
The government in Berlin has already earmarked financial support for manufacturing electric car battery cells in a bid to counter the dominance of Asian firms though it was unclear whether Tesla would receive similar German support.
Germany's biggest labour union, the influential IG Metall, welcomed Tesla's plan. "This strengthens Berlin as an industrial location and creates jobs. We hope this sets an example," Birgit Dietze IG Metall's regional head said on Wednesday.
While Germany's renowned car industry is mainly based in the south of Europe's biggest economy, the capital has become a hub for start-ups and has attracted many creative and technology firms since the fall of the Berlin Wall three decades ago.
Musk, who said in June last year that Germany was the frontrunner for Tesla's first plant in Europe, told the awards ceremony on Tuesday that the factory would be near the city's new Brandenburg international airport.
Tesla announced last month that it expected to start production in Europe in 2021.
"Tesla is coming to Brandenburg with a big investment," Dietmar Woidke, premier of Brandenburg state, which surrounds Berlin, said in a statement. "We lobbied for this for a long time in intensive talks and with good arguments."
Tesla has started hiring for the German project, according to job postings on its website which showed the automaker was looking to fill four roles from engineering to construction.
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 or research.
Musk's appearance at the awards ceremony is another example of Tesla's efforts to give its cars the German stamp of quality.
It already has an engineering firm in Pruem that specializes in automated manufacturing systems for battery factories and has tested its cars on the Nordschleife, the notorious northern loop of the Nuerburgring racing track.
(Reporting by Edward Taylor in Frankfurt, Paul Carrel, Rene Wagner, Thomas Seythal and Christian Kraemer in Berlin, Yilei Sun in Beijing and Ayanti Bera in Bengaluru; Editing by David Clarke)