Tesla has cut EV production at its China plant amid sluggish sales growth and intense competition in world’s biggest car market

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Tesla Inc. has reduced electric car production at its plant in China, according to people familiar with the matter, amid sluggish growth in new-energy vehicle sales and intense competition in the world’s biggest automobile market.

The US automaker earlier this month instructed employees at its Shanghai facility to lower production of both the Model Y sport utility vehicle and Model 3 sedan — the two types it makes in China — by working five days a week instead of the usual 6 1/2 days, the people said, asking not to be identified because they’re not authorized to speak publicly. 

The production lines run on two 11.5-hour shifts per day, which remains unchanged. Output has been trimmed starting earlier this month, the people said, and staff haven’t been given clear indication of when production will go back to normal.

Tesla representatives didn’t respond to requests for comment. The carmaker’s stock — already the worst performer in the S&P 500 Index this year — slumped as much as 3.9% before the start of regular trading Friday.

While overall sales of passenger vehicles in China in the first two months of 2024 increased by 17% from last year and sales of new-energy vehicles, which includes both plug-in hybrids and pure electric cars, rose 37.5% year-on-year, Tesla recorded a year-on-year decrease in shipments. 

Elon Musk’s carmaker is up against increasingly stiff competition in China, not only from homegrown competitor BYD Co. but a raft of other EV manufacturers churning out more affordable, tech-laden vehicles.

Tesla meanwhile in China relies mainly upon two models unveiled prior to 2020 to compete. Its Model 3 sedan got a small upgrade last year and there was an even slighter rejig of its Model Y.

At the same time, demand for electric cars is slowing, not only in China but in other major regions like the US and Europe. Tesla makes cars for domestic consumption from its factory on the outskirts of Shanghai but also exports tens of thousands of vehicles into other parts of Asia and Europe every month.

Some of the production lines at Tesla’s Shanghai plant, including the battery workshops, are subject to longer suspensions, one of the people said. Tesla has told staff and some suppliers to be prepared for extended production limits through April. In early April, China will celebrate Tomb Sweeping Day, a holiday that’s typically a quiet time for consumption also.

Tesla delivered 131,812 vehicles in the first two months of 2024, a 6% drop from the same period a year ago, data released by China’s Passenger Car Association show. Only 53% of shipments went to the local market, despite price cuts Tesla has been carrying out since the start of the year. 

Tesla has also continued to offer incentives for local buyers following an in-advance price-increase announcement for its Model Y cars 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 25% to 11 million units this year, the PCA has said. While still expanding, that’s a slowdown from 36% in 2023 and 96% in 2022.

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