Photo: Tesla | Edited
Tesla inventory is building up as production ramps, and demand has remained essentially flat during the past quarters. It was just a matter of time before Tesla had to pause production to allow demand to catch up. The EV maker has used the Labor Day holidays in China to halt production for five days.
For years, Tesla has been struggling to ramp up production to fill all those orders it was getting. At some time in 2022, the backlog was so high that Tesla decided to stop taking orders on some models because delivery estimates surpassed a year of waiting. Those were the days, but they're not coming back soon. As Tesla opened more gigafactories and production was no longer an issue, the EV maker found it hard to keep those production lines going when the demand essentially plateaued.
This is something that few people expected just half a year ago when Tesla was hiking prices like there was no tomorrow. But starting in Q3 2022, Tesla discovered inventories were building up, and demand was suddenly an issue. Since then, people kept talking about demand, inventories, and advertising. This led to some of the deepest price cuts the automotive industry has seen since the Henry Ford era. The EV maker and its CEO, Elon Musk, indicated there's no bottom to that. Tesla would rather sell its EVs at cost than lose production volumes.
But we've also seen that price cuts don't appear to work. Tesla's inventory is again at an all-time high, despite its efforts to make the cars more affordable. It was only a matter of time before Tesla would have to take more drastic measures, like slashing production. We've already had indications of this happening in the first quarter. Despite Giga Texas and Giga Berlin announcing new production milestones, Tesla production numbers have remained at the same level as in Q4 2022. This indicates that Tesla throttled Giga Shanghai and Fremont to accommodate the production ramp at Berlin and Austin.
Industry insiders confirmed that Tesla is pausing Giga Shanghai production for five days between April 29 and May 3. We've also seen this for the Chinese New Year at the end of January when Tesla halted Giga Shanghai production for a tad longer than the holidays. Usually, Tesla doesn't stop production for anything, including Christmas in the US. Still, 2023 is different than the years before. Not only was Giga Shanghai paused longer than expected in January, but Tesla also chose to accommodate Labor Day with a five-day production halt.
Tesla fans quickly pointed out that stopping production for holidays is good because it gives workers time to spend with their families. Or even inevitable, considering it's a national celebration. The fact that China's biggest celebration is the Chinese New Year, not Labor Day, matters less. Tesla did not stop production even for the Chinese New Year in 2020, 2021, or 2022, which is significant. Still, it paused Giga Shanghai in December 2022, reportedly for retooling, and again in January 2023 for the Chinese New Year.
Industry insiders expect production in Q2 and Q3 to be clearly below the 264K per quarter capacity because of the lower demand. This might also bring new production pauses in the second quarter. Further price cuts should not be ruled out, which might hurt both margins and demand. When people expect the car prices to trend lower, they are more inclined to delay the purchase.
This is something that few people expected just half a year ago when Tesla was hiking prices like there was no tomorrow. But starting in Q3 2022, Tesla discovered inventories were building up, and demand was suddenly an issue. Since then, people kept talking about demand, inventories, and advertising. This led to some of the deepest price cuts the automotive industry has seen since the Henry Ford era. The EV maker and its CEO, Elon Musk, indicated there's no bottom to that. Tesla would rather sell its EVs at cost than lose production volumes.
But we've also seen that price cuts don't appear to work. Tesla's inventory is again at an all-time high, despite its efforts to make the cars more affordable. It was only a matter of time before Tesla would have to take more drastic measures, like slashing production. We've already had indications of this happening in the first quarter. Despite Giga Texas and Giga Berlin announcing new production milestones, Tesla production numbers have remained at the same level as in Q4 2022. This indicates that Tesla throttled Giga Shanghai and Fremont to accommodate the production ramp at Berlin and Austin.
Industry insiders confirmed that Tesla is pausing Giga Shanghai production for five days between April 29 and May 3. We've also seen this for the Chinese New Year at the end of January when Tesla halted Giga Shanghai production for a tad longer than the holidays. Usually, Tesla doesn't stop production for anything, including Christmas in the US. Still, 2023 is different than the years before. Not only was Giga Shanghai paused longer than expected in January, but Tesla also chose to accommodate Labor Day with a five-day production halt.
Tesla fans quickly pointed out that stopping production for holidays is good because it gives workers time to spend with their families. Or even inevitable, considering it's a national celebration. The fact that China's biggest celebration is the Chinese New Year, not Labor Day, matters less. Tesla did not stop production even for the Chinese New Year in 2020, 2021, or 2022, which is significant. Still, it paused Giga Shanghai in December 2022, reportedly for retooling, and again in January 2023 for the Chinese New Year.
Industry insiders expect production in Q2 and Q3 to be clearly below the 264K per quarter capacity because of the lower demand. This might also bring new production pauses in the second quarter. Further price cuts should not be ruled out, which might hurt both margins and demand. When people expect the car prices to trend lower, they are more inclined to delay the purchase.
The news from China is that production is indeed paused for a few days. This is because production at full capacity would result in 264K units being produced this quarter but they only need 210K.
— Troy Teslike (@TroyTeslike) April 30, 2023
Therefore, they need to pause it for 18 days in Q2. I expect another pause in June
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