Tesla Prepares to Cut Back Shanghai Production Due to Low Chinese Demand

Tesla (NASDAQ: TSLA) is preparing to cut output at its Shanghai factory, in response to lower demand among Chinese consumers.

According to Bloomberg, which cited people familiar with the matter, Tesla is planning to reduce output by at least 20% from the factory’s full production, bringing capacity levels on par with October and November. The voluntary move comes amid a slump in China’s demand for Teslas, indicative of the company’s recent onslaught of incentives and price cuts. The EV maker has also drastically reduced its delivery times, also suggesting that supply is outpacing domestic demand.

The Shanghai plant recently underwent a significant upgrade, which doubled the factory’s output to around 1 million units per year. According to data compiled by China’s Passenger Car Association, Tesla sold a record 100,291 vehicles last month, thanks to a substantial cutback in delivery times of the EV maker’s Model 3’s and Mode Y’s; customers can now receive their car within the same month of ordering it, compared to previous wait times of up to 22 weeks in early 2022.

According to a November note by Junheng Li, CEO of equity research firm JL Warren Capital LLC, full capacity at Tesla’s Shanghai factory currently sits at 85,000 units. “Without more promotions, new orders from the domestic market will likely normalize to 25,000 in December,” she explained, adding that exports likely won’t absorb Tesla’s higher output. The EV maker has faced heightened competition from China’s domestic EV makers, including BYD Co. and Guangzhou Automobile Group, which are able to raise prices thanks to record sales.

Tesla, in response, ramped up advertising efforts and incentives, offering Chinese consumers extended insurance subsidies, bringing back a user-referral program, and even running advertisements on TV.

Information for this briefing was found via Bloomberg. 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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