Tesla (TSLA) stock drops on report it is reducing EV output at Giga Shanghai

Tesla’s (TSLA) stock dropped this morning due to a report that automakers are reducing their electric vehicle output at Gigafactory Shanghai because of lower demand.

Bloomberg says that Tesla removed one and a half day of work at Gigafactory Shanghai:

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 Tesla 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 change reportedly happened earlier this month and Tesla hasn’t communicated to employees when it plans to go back to full capacity.

This comes after indications that Tesla clearly had more difficulty than usual selling vehicles in China lately.

Earlier this week, Electrek reported how Tesla has been offering deeper discounts and incentives than usual for customers to take delivery by the end of the month.

The Bloomberg report also claims that the reduction in production capacity extends to other parts of the factory beyond Model 3 and Model Y production:

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.

On top of the difficulties selling its current inventory, Tesla’s sales of China-made vehicles are also down this year.

According to China’s Passenger Car Association show, Tesla delivered 131,812 vehicles in the first two months of 2024, a 6% drop year-over-year. Furthermore, only 53% of these China-made vehicles were sold in China. Tesla exported the rest.

The competition in China is extremely high, with Chinese EV manufacturers offering cheaper EVs and increasing their quality.