Shanghai’s “Closed-Loop” System For Factories May Not Solve Production Problems After All

Officials in Shanghai are under pressure to restart the economy amid the continuing COVID-19 lockdowns in the country’s financial capital. Over the weekend, the city told businesses to work on their resumption plans, and that this would include a “closed-loop management” system where workers would be required to live on site, regularly test for the virus, and follow prevention protocol. 

But even this, which is, in essence, a working lockdown, will only work until supplies or raw materials last. And that won’t be for very long, as the lockdowns continue to hamper logistics.

A source familiar with the matter told Bloomberg that Tesla (NASDAQ: TSLA), which is one of the 600 companies that will be resuming factory operations under the closed-loop system, only has inventory for two weeks. SAIC Motor, the Chinese partner of Volkswagen and General Motor, meanwhile, also reportedly does not have a sufficient supply of parts needed to make cars.

Maximilian Butek, the chief representative at the Delegation of German Industry and Commerce in Shanghai, shared in a LinkedIn post on Monday that companies that are currently running in closed-loop production “are facing challenges and may shut down very soon due to lack of logistics and workers.”

He added that logistics in Shanghai is not working, “companies cannot have production sites running since they cannot get raw materials delivered and cannot deliver their products to their customers.” And this is true as well for other cities in the Yangtze River Delta (YRD), where “different cities have different rules.”

Butek called for more communication and clarity from the city, as its plan for restarting the economy “remains vague” and reliant on the companies to “take over all responsibilities, which is not feasible, especially for small- and mid-sized companies.”

Tesla’s Closed-Loop Setup

The American electric vehicle maker is raising eyebrows yet again as conditions for its closed-loop operations appear a little dire. In a memo shown to Bloomberg, each worker will be given a sleeping bag and a mattress, which they will use to sleep on the floor in a designated area as the facility in Shanghai does not have living quarters.

The workers, who will be working 12-hour days, six days a week, will be given three meals a day and a daily stipend of 400 Yuan (US$63), but the actual amount will reportedly depend on the person’s position and level.

Information for this briefing was found via Twitter, Bloomberg and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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