Tesla Shanghai Supply Chain Issues Cause Another Production Halt — Will It Last?

Rachel Curry - Author
By

May 10 2022, Published 10:50 a.m. ET

Like the rest of the automotive industry (electric or otherwise), Elon Musk-owned Tesla Inc. (TSLA) is facing supply chain obstacles. For Tesla, the pressure is strong enough that the company has frozen production at its Shanghai plant.

Article continues below advertisement

This shut-down marks the third time Tesla has paused production at the Shanghai plant this year, though the current pause is for different reasons. Why is there another production halt and how long will it last?

Tesla has paused production at the Shanghai plant again.

Reports surfaced late on May 9 that Tesla is pausing productions at its Gigafactory Shanghai plant due to supply constraints and disruptions. The Shanghai plant was designed to produce up to 2 million vehicles annually at full capacity. In early March, Tesla was on track to produce more than 600,000 vehicles in its Gigafactory Shanghai for the year.

Article continues below advertisement

The current pause is Tesla’s third this year for its Shanghai location. The plant shut down briefly in early March due to COVID-19. In late March, the EV giant paused Shanghai production due to the city’s strict COVID-19 lockdown protocols. Reopening in late April, the plant was back up to producing about 1,000 vehicles per month, which is nowhere near top capacity. Now, the plant has paused again, this time for supply chain bottlenecks.

Given all the interruptions, Tesla’s typical production rate in Shanghai would be 2,000 vehicles per day. Right now, it’s nothing.

Article continues below advertisement

Understanding Tesla Shanghai supply chain issues

Tesla will likely release more information about its supply chain woes this week when the company releases its China-specific data for the month of April. The data will include wholesale numbers that could clarify where Tesla is at and what it would take for the Shanghai operation to recover.

In the meantime, Tesla hasn’t commented on the matter. Since speculation often assumes the worst, TSLA stock must depend on historic trust among investors.

Article continues below advertisement

We do have context for Shanghai supply chain bottlenecks at the city's ports, and the Tesla factory has likely been impacted by this backup.

Will Tesla restart production in Shanghai?

In China, passenger car sales of all kinds were down 36 percent YoY during the month of April, according to data from the China Passenger Car Association (CPCA). This is due in part to automotive factory shutdowns due to COVID-19 pandemic lockdowns, reduced industry spending, and a downturn in physical showroom visitors.

Article continues below advertisement

TSLA stock is up in the short term despite the news of a Shanghai shutdown.

TSLA stock rose 4.25 percent to reach $820.56 on May 10 in the first hour of trading. This overnight boost doesn't make up for one-month trailing losses of 15.84 percent. With the broad market in a YTD downturn and big tech stocks like Tesla taking a particular beating, it’s impossible to compartmentalize the company’s specific issue with that of the larger market.

Even Cathie Wood’s flagship ETF ARKK trimmed its Tesla stock position and invested in electric-focused GM (GM). Given Wood’s difficulty finding long-term success in her Innovation ETF, this move is rather telling. Perhaps Wood is moving on and making room for others.

Tesla’s Shanghai plant is bound to reopen, if only battered by China’s response to the ongoing pandemic and historic gaps in the automotive supply chain.

Advertisement

Latest Tesla Motors Inc News and Updates

    Market Realist Logo

    © Copyright 2022 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.