Tesla extends shutdown at Shanghai plant in rare Christmas break

SINGAPORE – Tesla inc

TSLA -1.76%

suspended car production at its Shanghai plant on Saturday, extending a planned eight-day halt to production at its world’s largest plant after auto production, according to people familiar with the matter.

On Saturday, Tesla notified some of its employees in Shanghai that it would halt car production that day, a day earlier than originally planned, the people said. The company previously informed employees that production would resume on Jan. 2, they said.

One of the people said that while it’s not uncommon for automakers to pause work on some production lines during the Lunar New Year holiday and summer, Tesla hasn’t traditionally shut down all car production during the Christmas holiday.

Tesla has built up enough inventory and the halt to production will not affect its ability to fill orders, people said. In the summer, Tesla increased the capacity of its Shanghai plant to more than 750,000 vehicles per year. However, demand for its cars has been weaker than expected over the past two months, they said, as China’s auto market has turned sluggish.

Tesla buyers in China can currently receive their new vehicles in four weeks, compared to September, when the wait was up to five times longer, according to the company’s website.

Tesla did not respond to a request for comment. On Sunday, the company told the Global Times, a news outlet of the Chinese Communist Party, that it had scheduled annual maintenance on its auto production lines in Shanghai this week and that workers would take a break during that time. According to the Global Times report, Tesla said it would not close the workshop that makes charging stations during this time. Reuters previously reported on the suspension.

Covid-19 infections have swept China in recent weeks after Beijing eased its zero-Covid policy and laid off workers at automakers and their suppliers, as well as dealership employees. Fewer potential customers have visited stores as fears of contagion remain high.

Tesla’s Shanghai plant was forced to close for weeks earlier this year due to Covid-19-related disruptions, prompting Wall Street to dampen its expectations for the automaker’s growth this year.

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Demand in the world’s largest auto market has been weak since October as Beijing’s strict Covid-19 control measures forced companies to shut down and lock down potential buyers at home. According to official data, November auto sales fell 9.2% year-on-year.

The China Passenger Car Association on Friday forecast nationwide auto sales in December to rise 4.5% from a year earlier, a relatively modest growth rate amid year-end phasing out of subsidies designed to make electric vehicles more attractive. Electric vehicle sales, a growth engine for China’s auto market, have slowed significantly since June.

In the third quarter of the year, Tesla said it had produced 22,000 more cars worldwide than it shipped, raising concerns about weak demand, particularly in China. The company has lost around 70% of its market value since its stock hit a record high in November 2021, in part due to concerns about slowing demand for electric vehicles.

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Tesla Chief Executive Elon Musk said in a Twitter Spaces chat on Thursday that he expects the global economy to fall into a “serious recession” in 2023, dragging down demand for large items. He said Tesla’s gross profit margin is higher than its competitors, giving it room to sustain sales growth by cutting prices. The automaker has doubled the discounts it is offering on its two most popular models shipping in the US this month.

In China, Tesla cut prices in the fall as Warren Buffett backed BYD co

extends its lead over Tesla. The American EV maker is offering various incentives to phase out cars ahead of the New Year.

Tesla’s Shanghai plant accounts for more than half of the company’s global car deliveries. In the five months from July to November, Tesla sold more than 332,000 Model 3 and Model Y from its Shanghai plant, 44% of which were exported to markets outside of China, according to the Auto Association.

Write to Raffaele Huang at [email protected]

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