Tesla Is Shutting Down Its Shanghai Plant Once Again. It’s Not a Grinch Moment.
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“T’was the night before Christmas and
Tesla
was shutting its Shanghai plant down…”
Reuters and other outlets reported that
Tesla
(ticker: TSLA) was suspending production at its Shanghai plant on Saturday, with the suspension lasting about a week.
Battered investors will fret at the latest headlines surrounding the electric vehicle maker, but they should sleep easy tonight—and resist the urge to overreact to another scary data point.
Tesla stock has lost 55% of its value over the past three months. Two issues have weighed heavily on shares: CEO Elon Musk’s management of the social media platform Twitter after taking it private, which has hurt investor sentiment, and a generalized anxiety about weakening demand for EVs.
Demonstrating the Musk effect, Tesla stock has badly underperformed the
Nasdaq Composite
and other auto stocks recently. The Nasdaq has dropped about 3% in the past three months, while
General Motors
(GM) shares have fallen roughly 5%.
It’s worth noting that EV makers’ stocks aren’t doing so well, either.
Rivian Automotive
(RIVN),
Lucid
(LCID), and
Fisker
(FSR) shares have slipped an average of about 35% in the past three months.
Tesla didn’t say why the production shutdown was happening, Reuters reported, and the company didn’t respond to Barron’s request for comment. The request was sent Saturday, but Tesla PR hasn’t responded to a Barron’s request for comment this year.
We have an idea why the plant went down: Auto plants typically take breaks during the holidays. Some GM plants will be shut this coming week, and
Ford Motor
(F) takes holiday breaks, too.
GM and Ford didn’t respond to a request for comment about their holiday schedules. But it’s very normal for auto companies to pause production in the summer and during the holidays so hourly workers can have time off. Mass holidays makes production planning very easy.
Tesla, of course, isn’t just a car company: It has a fast-growing tech stock watched by many bullish analysts.
Alphabet
(GOOGL) doesn’t shut Google search down in the final week of the year so software engineers can take a break.
What’s more, Tesla is getting larger: The company is currently capable of producing roughly two million vehicles a year. And electric battery penetration of Chinese car sales will end the year at greater than 20% of all new car sales. The days of Tesla Shanghai running at maximum capacity no matter what’s going on in the Chinese economy are probably over.
It would be unwise to completely ignore the shutdown story—but at worst, it’s just a confirmation of what investors already know. Wait times for new Tesla vehicles are falling, and Wall Street is cutting fourth quarter delivery figures. The Street now expects about 420,000 units to be sold in the fourth quarter, down from about 440,000 a few weeks ago.
The 420,000 figure would still be a record and quite an accomplishment, given Covid problems in China. Sales in the U.S. have also decelerated, as car buyers wait for EV purchase tax credits to go into effect on Jan. 1.
Investors should take some solace in the fact that China reopening in the wake of its zero-Covid policy and the new tax credits should help boost EV demand in 2023, after a shaky finish to 2022. Optimists can point out that the December shutdown is a reflection of what’s already happened.
There aren’t many optimists in the auto investing world these days. Not everything is going right for Tesla, or the auto industry—as stock charts show.
It would be great if Tesla officials commented on production plans and inventory levels, or even what happened at different Tesla facilities in prior years. More real-time communication from Tesla would be a real Christmas miracle.
Write to Al Root at [email protected]
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