Tesla’s Gigafactory in Shanghai Restarts as COVID Lockdown Ends: Output at 70%
As China continues to relax its stringent Covid restrictions, reports suggest Electronic Vehicle manufacturer Tesla has already increased its weekly output. The US automaker also reportedly hired a second shift of workers for its Shangai gigafactory last week to boost its capacity.
Consequently, the recruitment has had the intended effect, with the factory’s output this week nearing 70% of the pre-lockdown levels. Currently, Tesla is rolling out about 2000 cars weekly off its assembly lines but the company is yet to fully ramp up its production yet.
Tesla Reeling From China’s Covid Lockdown
China’s recent lockdown of Shangai over new covid fears has significantly impacted Tesla’s attempt to bring back its production to pre-covid levels. The company, already reeling from supply chain issues and workers shortage in China, had to close at the end of May. However, it opened the plant in April at reduced operating rates.
The direct result of China’s restriction was the inability of Tesla to deliver a significant portion of the 10,000 vehicles manufactured in April. Only about 1500 or 15% of cars manufactured were delivered with Covid keeping buys at home. Despite this, the number of vehicles produced is far from the capacity of the gigafactory, which made 71,000 units in December 2021.
Accordingly, with the restriction relaxed, Tesla will continue to run its Shanghai operation in a closed-loop setting until early June. Workers will be secluded from the outside world due to local Covid restrictions as the car manufacturer aims to maintain its 70% output.
Incidentally, the Chinese government is set to assist Tesla in boosting its production as it looks to spur consumption. Reports suggest that Shanghai’s authorities will cancel many policies to ensure businesses can commence activities in earnest.
Consequently, Beijing’s efforts to increase consumption and boost its economy would include adding 40,000 car ownership quotas for the year. Furthermore, it would provide subsidies for persons who switch from gasoline-powered vehicles to battery-powered electric vehicles.
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Tesla Share Price Gets a Boost
Tesla’s stock price has been on an upward trajectory for a couple of days following its increasing output. At $759.86, the share price has surged by nearly 20% from the lows of $628.16 recorded last week.
As seen in the chart, Tesla’s share price has slumped since the start of the year in line with the downturn in the financial market. Several other factors have also impacted, including Elon Musk’s intended purchase of Twitter and supply chain issues combined with China’s covid restrictions.
Likewise, global headwinds, like the Russia- Ukraine conflict, rising inflation, and increasing interest rates, have played a significant role. Nonetheless, despite the almost 40% drop this year, investors continue to bet big on the electric car manufacturer.
Despite its poor performance, analysts believe that Tesla’s stock possesses strong fundamentals to perform well in the long run. Philippe Houchois, an analyst with finance service company Jefferies, believes that Tesla continues to challenge the industry’s business model. He said,
“Tesla continues to challenge the industry’s business model at multiple levels by avoiding resource- and capital-intensive complexity,”
Furthermore, he opined that Tesla is on track to create free cash flow quicker than it can build physical items and capacity. He expects the corporation to invest the funds in increased battery vertical integration and/or captive finance to promote affordability.
Tesla stocks may see significant gains due to its strong fundamentals in the long run. However, for the time being, it may see a further sell-off. The prevailing market conditions and the threat of a recession would significantly impact it, so investors would need to tread carefully.
Do you think Tesla increasing its weekly production output would significantly impact its share price? Let us know your thoughts in the comments below.