Musk, who said in June past 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 global airport.
"I actually have an announcement, which I hope will be well received", said Musk.
The news was a surprise as the states of Lower Saxony and North Rhine-Westphalia were long considered to be frontrunner locations for the factory in Germany.
Musk, 48, is laying the groundwork for his next plant just as Tesla is preparing to start sales of cars built on the outskirts of Shanghai.
Musk had said in June a year ago that Germany is the frontrunner for its first factory in Europe.
"There's not enough time tonight to tell all the details. We're likely to establish a Tesla engineering group in Britain at some point in the future".
Diess thanked Musk while on stage for "pushing us" towards electrification.
The facility will include an engineering and design centre and will be used to manufacture cars, batteries and powertrains.
Assembled in Tesla's new Shanghai Gigafactory, which broke ground in January, the first Model 3 sedans came in blue and were emblazoned with the brand name in Chinese characters. Volkswagen kicked off mass production of its new ID.3 electric vehicle at its plant in Zwickau, Germany, a few weeks ago, and is pinning its hopes on this little auto becoming the same kind of success story in the reasonably-priced category that the VW Beetle and Golf were in the past. Musk dubbed it a "Gigafactory" because it was created to produce batteries with gigawatt-hours of storage capacity.