Tesla pauses plants after ending shaky quarter with a production miles

TESLA investors have a lot to parse after the Jul 4 holiday: a disappointing quarter of deliveries, a record month of production, and now several weeks of downtime at multiple plants.

The electric-car maker will halt most production on its Model Y assembly line in Shanghai for the first 2 weeks of July, then stop the Model 3 line for a 20-day stretch starting Jul 18, Bloomberg reported last month. Upgrade work at the factory to boost output of both vehicles is expected to be completed by early August, people familiar with the matter said.

On Monday (Jul 4), TeslaMag said the carmaker's plant near Berlin will take a 2-week break starting Jul 11. The German site reported that Tesla aims to roughly double its production rate from August, citing an unidentified source. The company built 1,000 Model Ys at the factory during at least one week last month.

Tesla didn't mention these plans in its Jul 2 production and deliveries statement. The carmaker offered an upbeat line - it made more vehicles in June than any month in its history - while disclosing 254,695 deliveries for the quarter, short of analysts' estimates.

The "relative weakness" of the quarter was expected, Philippe Houchois, a Jefferies analyst with a buy rating on Tesla shares, said in a Jul 3 note. He wrote that chief executive officer Elon Musk's comments referring to the company's new plants as "money furnaces" suggest Tesla's free cash flow may have been affected by significant working capital disruptions.

The biggest blow to Tesla's performance last quarter came from Shanghai's weeks-long lockdown in response to a Covid outbreak. The company went to extraordinary lengths to reopen its factory there and keep it running, with thousands of workers sleeping on site to maintain partial production.

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Whereas Shanghai is Tesla's most productive plant, its factories near Berlin and Austin, Texas, are only just getting going. Musk staged an opening party at the former on Mar 22 and at the latter on Apr 7.

While those were jovial affairs - Musk danced in Germany and donned a cowboy hat and shades in Texas - the CEO sounded much more subdued a few weeks later.

"Berlin and Austin are losing billions of dollars right now because there's a ton of expense and hardly any output," Musk told the Tesla Owners of Silicon Valley on May 31. "Getting Berlin and Austin functional and getting Shanghai back in the saddle fully are overwhelmingly our concern."

The Shanghai shutdown and struggles ramping up new plants contributed to Tesla shares plunging 38 per cent in the 3 months that ended in June, a record quarterly drop. The S&P 500 slumped 16 per cent, the biggest decline for the benchmark US stock index since the first quarter of 2020.

Tesla scheduled its quarterly earnings report for Jul 20. BLOOMBERG