In the latest sign that demand in China is falling short of expectations, Tesla Inc. plans to cut production at its Shanghai factory, according to people familiar with the matter.
Starting this week, the production cuts will take effect, said the people, who asked not to be named because the information is not public. They stipulate that the move could decrease production by about 20% from full capacity, which is the rate at which the factory operated in October and November.
The decision came after the automaker assessed its near-term performance in the domestic market, one of the people said, adding that there is flexibility to increase production if demand increases.
It’s the first time Elon Musk’s electric vehicle maker has voluntarily cut production at its Shanghai plant, after previous cuts were due to two-month-long covid lockdowns or supply chain issues. Recent price cuts and incentives such as insurance subsidies, coupled with shorter delivery times, suggest that demand has been unable to keep up with supply after an upgrade that doubled plant capacity to around than 1 million cars a year.
The China Passenger Car Association reported Monday that Tesla’s deliveries in China hit a record 100,291 in November, as delivery schedules for the Model 3 and Model Y, the two vehicles Tesla makes in Shanghai , have dropped markedly, another sign that the factory is producing more vehicles than it sells.
The Shanghai factory mainly supplies the Chinese market, though some cars are exported to Europe and other parts of Asia. Any Model 3 and Model Y ordered in China today should be delivered within the month, according to Tesla’s website, less than up to four weeks in October and up to 22 weeks earlier this year.
Total production capacity at the Shanghai factory is about 85,000 vehicles per month, Junheng Li, chief executive of equity research firm JL Warren Capital LLC, said in a Nov. 22 note. “Without further promotions, new orders from the domestic market are likely to normalize to 25,000 in December,” he said, adding that the increase in production could not be absorbed by exports.
BYD posted a ninth straight month of record sales in November, with deliveries topping 230,000, including nearly 114,000 pure electric models. Tesla is facing intensifying competition from local automakers such as BYD Co. and Guangzhou Automobile. Group, which are driving up prices in the world’s largest electric vehicle market.
Tesla’s reliability is also back in the spotlight after two recalls in China last month that forced software fixes and the return of some vehicles for maintenance. The recent deadly accident involving a Model Y that killed two people has brought Tesla’s safety record back under scrutiny.
Tesla, which has long shunned incentives and traditional advertising, has decided to offer expanded insurance subsidies, reinstate a customer referral program and even run ads on television.
Published by The Tampa Herald, news and information agency.