Tesla Inc. plans to reduce production at its Shanghai factory, according to sources familiar with the matter, in the latest sign demand in China is not meeting expectations. The automaker’s shares were down in early trading.
The output cuts will take effect as soon as this week, said the people who asked not to be identified due to the information not being public.
They approximate the move can lower production by around 20% from full capacity, which is the rate the factory ran in the last two months.
The decision was made after the company assessed its near-term performance in the domestic market, says one of the sources, adding that there is flexibility to increase output if demand grows, as per Finance Yahoo.
A Tesla representative in China said that plans to cut output were “untrue,” and did not elaborate. Shanghai Securities News cited unidentified people familiar with the company, said late Monday the planned cut in China’s plant production is “false information.”
Tesla stocks are down 4.6%
The automaker’s shares fell 4.6% to $185.83 as of 9:58 AM in New York. The stock is down about 47% this 2022.
The trimming marks the first time the manufacturer voluntarily lessened production at its Shanghai factory, with previous reductions caused by the city’s two-month Covid-19 lockdown or supply chain constraints.
Recent price cuts and incentives like insurance subsidies, alongside shorter delivery times, suggest demand failed to keep pace with supply after an upgrade doubled the plant’s annual capacity to about 1 million cars.
Tesla China’s record of November deliveries
According to China’s Passenger Car Association, Tesla’s China deliveries were a record 100,291 last month as lead times for the Model 3/Y (the two models Tesla produces in Shanghai) shortened markedly, another sign that the factory is producing more cars than it sells.
Model3/Y waiting time reduced
Tesla’s website shows that any Model 3/Y ordered in China today must be delivered within the month, down from as long as four weeks in October and up to 22 weeks earlier this 2022.
Notably, the Shanghai factory primarily serves the Chinese market. However, some cars are exported to other parts of Asia and to Europe.
The full production capacity at the Shanghai factory is about 85,000 vehicles monthly.
Without more promotions, new orders from the domestic market will likely normalize to 25,000 in December.
Junheng Li, chief executive officer of JL Warren Capital LLC
She added that increased production could not all be absorbed by exports.
China’s intensifying competition among automakers
Furthermore, the Texas-based carmaker faces increasing competition from local automakers like BYD Co. and Guangzhou Automobile Group, which are raising prices in the world’s largest electric vehicle market.
BYD posted a 9th consecutive month of record sales last month, with deliveries topping 230,000, which includes nearly 114,000 pure-electric models.
This has contributed to Tesla, which has long dropped incentives and traditional advertising, deciding to provide extended insurance subsidies, restoring a user-referral program and even advertising on television.
Tesla’s reliability
In addition, Tesla’s reliability is back after two recent recalls in China that required some vehicles to be returned for maintenance and over-the-air software fixes.
A fatal crash involving Tesla Model Y that killed two people has once more sparked discussion regarding the brand’s safety record.
