Tesla will shorten production shifts at its Shanghai factory as soon as Monday (Dec 12) and has delayed the on-boarding of some new hires, people familiar with the situation said. The moves add to signs that demand for the company’s electric cars in China is not meeting expectations.

The plant will operate two nine-and-half-hour shifts per day, down from two 11-and-a-half-hour shifts currently, according to the sources, who asked not be named because the information is not public. The change is scheduled to take place from Monday, according to a production schedule seen by Bloomberg News, though it may be subject to some last-minute adjustments, the sources noted. The shorter shifts will lead to reduced monthly pay for production staff, they added.

Tesla shares fell as much as 2.3 per cent on the news to US$170 before the start of regular trading.

Earlier this week, Bloomberg reported that Tesla plans to cut production this month at the Shanghai factory across the Model Y and Model 3 production lines by about 20 per cent. A Tesla representative said it was “untrue” the carmaker planned to cut output, without elaborating.

Separately, the on-boarding process of some new hires has been suspended, other sources said. Some production staff who were slated to start in November, including in Tesla’s battery workshops and on vehicle assembly lines, were informed by the company their start dates would be delayed. One of the sources said they were told by Tesla’s recruiter to be prepared for to start after the Chinese New Year holiday, which falls at the end of January, because there is no urgent need for more workers right now.

A Tesla representative in China declined to comment on Thursday. 

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After enjoying a dream start in China, Elon Musk’s electric vehicle (EV) pioneer is now facing tougher competition from local electric car makers in the word’s biggest auto market. Recent price cuts and incentive offers signalled that demand is not keeping up with increased supply after an upgrade of the factory boosted capacity to around one million vehicles a year. On Wednesday, Tesla offered 6,000 yuan (S$1,167) in subsidies to customers who buy and take delivery of new cars this month – suggesting it has stock to clear.

China is key for Tesla, and continued growth in the world’s biggest EV market is crucial for achieving Musk’s goal of 50 per cent annual growth globally for years to come.

The pullback in Shanghai comes as Tom Zhu, the long-time Tesla executive who oversaw construction of what was the US company’s first overseas gigafactory, is deployed at the newest plant in Austin, Texas, Bloomberg reported earlier on Thursday. Zhu, who has been heading Tesla’s Asia-Pacific operations, was said to be overseeing the ramp-up of Giga Texas. 

The shorter shifts at the Shanghai factory, as part of the output cut, will not necessarily be immediately reflected in monthly deliveries because the company still has some inventory on hand, one of the sources said. Any Model 3 or Model Y ordered in China today should be delivered within the month, Tesla’s website shows. That lead time is down from as long as four weeks in October and up to 22 weeks earlier this year. 

Tesla may need to cut prices in China further in the coming year because it “increasingly appears to have a demand issue”, Sanford C Bernstein analyst Toni Sacconaghi Jr said in a note this week. 

Tesla shares fell for a third day on Wednesday, taking their decline this week since Bloomberg News reported the Shanghai production cuts to almost 11 per cent. Bloomberg