Tesla Suggests Shanghai Factory Has Little Room to Increase Output Following Q1 Profit Plummet

BEIJING, April 19 (TMTPOST) Tesla Inc. suggested Shanghai Gigafactory, its largest manufacturing facility, may not increase output anymore following the significant profit decline due to price cuts.

Source: Visual China

Tesla doesn’t expect Shanghai factory has meaningful increase of weekly production run rate since it has been running near full capacity for several months, according to a quarterly filling on Wednesday. The factory started operations in late 2019 and has maintained the installed annual capacity of more than 750,000 vehicles since the second quarter last year, topping all the other faculties in the world. It builds Model 3 and Model Y vehicles in China and for exports. Vehicles made by Shanghai factory began to deliver for Thailand market in February. The recent filling said the reception in Thailand has been very positive thus far and Shanghai factory remains Tesla’s main export hub.

The filling showed Tesla revenue grew 24% year-over-year (YoY) to $23.33 billion in the quarter ended March, roughly in line with the Wall Street estimates. The revenue declined 4% from the previous quarter and cooled down compared with the 40% of YoY increase in the previous quarter. While the non-GAAP diluted earnings per share (EPS) fell 21% YoY to $0.85, just shy of the estimated $0.86, it is the first yearly drop in non-GAAP EPS since the third quarter in 2019, highlighting the global price cuts since the beginning of the year.

The quarterly earnings came as Tesla faced backlash as a Shanghai worker’s death. Earlier this week, posts by Tesla Shanghai workers that circulated online expressed their anger over unfair cuts in performance related pay amounting to about 2,000 yuan due to a safety accident in February. These employees, upset with this penalty, appeal to Tesla CEO Elon Musk. Musk replied with a tweet that said “Was alerted this weekend. Looking into it”.

At a recent investigation report of the worker’s death, the Emergency Management Bureau of Shanghai Pudong District found a mechanical accident occurred at a welding workshop at Tesla's factory on the evening of February 4, which was directly caused by a failure of two workers to observe relevant safety regulations during the shift turnover. The authority recommended to impose an administrative punishment onTesla for its risk control loopholes, and the employee who didn’t check whether the hazardous area was unoccupied before starting the reset of the equipment should be held responsible.

The China Passenger Car Association (CPCA) estimated Tesla Shanghai Gigafactory delivered more than 710,000 vehicles in 2022, accounting for about 54% of the automaker’s annual delivery. Shipment in the factory increased 48% from a year earlier, despite a three-week shutdown owing to the Covid-19 that had made Tesla lost weeks’ of capacity. The outstanding performance was at the cost of various forms of price war. Tesla has launched five rounds of promotion including price cuts and various subsidies from the mid September to the end of the year. The U.S. company also intensified price war this year to boost demand. It slashed price by up to 13% in China on January 6, making the starting price of Model Y and Model 3 down to new low. Less than a week later, Tesla lowered prices across the U.S. Europe, the Middle East and Africa by as much as 20%. As of Wednesday, it has reduced prices in the United States for the sixth round this year.