Giant Electric Vehicle (EV) maker Tesla, has reduced its production of vehicles in China, amidst a slowdown in sales growth and intense market competition, resulting in a nearly 4% drop in share price.
Reports reveal that the US carmaker earlier this month, instructed employees at its Shanghai facility to lower production of both the Model Y and Model 3, the two vehicles it makes in China by working five days a week.
Output has been trimmed and employees have not been given any clear indication about when production will go back to normal. While overall passenger-vehicle sales in China increased 17% in the first two months of the year, and sales of new-energy vehicles rose 37.5%, Tesla recorded a decline in shipments from the same period a year ago.
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Tesla is up against increasingly stiff competition in China, not only from homegrown competitor BYD but from a series of other EV manufacturers churning out more affordable and tech-laden vehicles.
Tesla relies predominantly on two models first unveiled before 2020 to compete in China. The company did update the Model 3 sedan and Model Y sport utility vehicle in the second half of last year. Some of the production lines at Tesla’s Shanghai plant, including the battery workshops, are subject to longer suspensions. The EV maker has told staff and some suppliers to be prepared for extended production limits through April.
In terms of delivery, Tesla delivered 131,812 vehicles in the first two months of 2024, a 6% drop from the same period a year ago, as data released by China’s Passenger Car Association revealed. Only 53% of shipments went to the local market, despite price cuts that Tesla has been carrying out since the start of the year.
The company also has continued to offer incentives for local buyers following an in-advance price-increase announcement for the Model Y in an attempt to spur sales before the first quarter wraps up.
Growth of electric car sales in China is slowing after the government stepped away from a decade-long promotion of the sector and ditched nationwide subsidies at the end of 2022. Shipments of new-energy vehicles to dealers are projected to increase by 25% to 11 million units this year.
In China, Tesla has been dealing with a host of challenges lately, including stiffer competition globally and a cooling of electric vehicle demand. The company has cut prices at various points in the past year in an attempt to stimulate demand.
The company’s CEO Elon Musk has raised concerns about a price war initiated last year to attract consumers facing high borrowing costs, resulting in squeezed margins for Tesla and causing investor worries.
He cautioned that Tesla was approaching the “natural limit of cost down” with its existing lineup. Tesla’s plans to introduce a more affordable mass-market compact crossover, codenamed “Redwood,” in mid-2025 to compete with cheaper rivals were confirmed by Musk.
Tesla has also experienced a significant reduction in deliveries from its Shanghai gigafactory, dispatching only 60,365 vehicles in the previous month. This is a 16% decrease from January and a 19% year-on-year fall, as highlighted by the China Passenger Car Association. However, the company maintains that they’re on track to hit their production target of 1.4 million cars for the year.