Tesla reduces Shanghai production output in latest sign of sluggish demand

TESLA will lower production at its Shanghai factory, said sources familiar with the matter, in the latest sign that demand in China is not living up to the company’s expectations.  

The output cuts will take effect as soon as this week, and could reduce production by about 20 per cent, said the sources, who asked not to identified because the information was not public.

One source said Tesla made the call after it evaluated its near-term performance in the Chinese market.

The Shanghai plant’s production capacity was recently doubled to about 1 million cars a year. However, recent price cuts and added incentives – such as insurance subsidies and shorter delivery times – suggest that demand in China has failed to keep up with supply.

The source added that there was enough flexibility for the automaker to increase output if demand were to increase.

Junheng Li, chief executive of equity research firm JL Warren Capital, said that full production capacity at the Shanghai factory was around 85,000 vehicles per month. “Without more promotions, new orders from the domestic market will likely normalise to 25,000 in December,” she said.

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Li added that exports could not absorb all the increased production.

A Tesla representative in China declined to comment.

The trims mark the first time Elon Musk’s electric vehicle (EV) pioneer voluntarily reduced production at its Shanghai plant. Previous reductions were caused by the city’s two-month Covid lockdown and supply chain snarls.

Tesla is facing intensifying competition in China from local automakers such as BYD and Guangzhou Automobile Group. The two have raised prices in the world’s largest EV market. BYD posted a ninth consecutive month of record sales in November, with deliveries topping 230,000 units. This included almost 114,000 pure-electric models. 

Tesla’s reliability is also back in the spotlight after two recalls in China in the past month. One necessitated over-the-air software fixes, while another required some vehicles to be returned for maintenance.

A recent fatal crash involving a Model Y that killed two people also sparked discussion over Tesla’s safety record. BLOOMBERG