Tesla Halts Plans to Increase Capacity at Shanghai Gigafactory

Tesla announced that there will be no second assembly line at its Shanghai Gigafactory as the world's largest electric vehicle market faces weakening demand. The facility has been running near full capacity for a couple of months now.

(Photo : Xiaolu Chu/Getty Images)
SHANGHAI,CHINA - MARCH 29: An aerial view of Tesla Shanghai Gigafactory on March 29, 2021 in Shanghai, China. Tesla Shanghai Gigafactory is reportedly producing vehicles at a rate of about 450,000 cars per year.

No Plans to Increase Capacity

Tesla will not be expanding its assembly line for its Shanghai Gigafactory despite running near capacity for several months. According to a report from South China Morning Post, the electric vehicle market is currently facing weakening demand that affects the automaker's plans and decisions.

During the quarterly profit report, Tesla stated that production and delivery changes were the main focus of the company in China last year. "Since our Shanghai factory has been successfully running near full capacity for several months, we do not expect meaningful sequential volume increase in the near term," the company added.

Possible Causes

Reuters previously reported that Tesla planned to start expanding the plan to double the production capacity in China. By doing this, the company will meet the growing demand for its cars in the country and export markets.

Especially that the company has been receiving strong domestic sales for its locally built Model 3 and Model Y electric vehicles. But this was halted as the company reflected and recognized how aggressive the competition is in the country, especially that Chinese rivals started growing in the industry.

Because of this, the demand for Tesla EVs decreased. Chief Executive Officer Elon Musk stated during the earnings call with analysts that they have been working harder and smarter than ever as Tesla becomes the most competitive company in the industry.

He added, "Since our Shanghai factory has been successfully running near full capacity for several months, we do not expect meaningful sequential volume increase in the near term."

Adding to this is that given the economic situation with decreasing wages and low job opportunities, customers are opting for cheaper variants of electric vehicles in the market, which were sold by other competitors like BYD.

Shanghai Analyst Gao Shen stated that EV makers should focus on sales and delivery now that the market conditions have been changing since then. The analyst added that "Premium EV brands may either cut prices or develop new mass-market models to maintain their market share."

Tesla's competitors in China that offer variants of electric vehicles include Nio, Xpeng, BYD, and Li Auto.

It was reported last month that Tesla will conduct limited operations in the Shanghai Gigafactory. No explanations were given by the company regarding the slowdown of production but several investors were worried about this.

Gizmodo reported that this comes just recently when Tesla reduced its production due to the infections of COVID-19 cases that surged for several weeks.

Aside from the slowdown of sales, investors were also concerned that Musk has been diverting his focus and resources to the social media platform Twitter, as he recently acquired the company last November.