Tesla’s Chinese production decline tends to be deeper than Musk predicted, data and internal memos show

SHANGHAI, June 9 (Reuters)Production at Tesla Inc. TSLA.O The Shanghai plant is set to fall by more than a third this quarter from the first three months of the year as China’s zero-COVID lockdowns caused deeper disruptions to production than Elon Musk hadn’t expected it.

The American car manufacturer aims manufacturing more than 71,000 vehicles at its Shanghai plant in June, according to an internal production memo seen by Reuters.

With the 44,301 units produced in April and May, according to data from the China Passenger Car Association (CPCA), that would be equivalent to approximately 115,300 units in the second quarter.

In the first three months of the year, Tesla Shanghai manufactured 178,887 cars, according to the CPCA.

Tesla did not immediately respond to a request for comment on Thursday.

Musk, the company’s chief executive, said on a call with analysts in April that vehicle production at the Shanghai plant in the second quarter would be “about equal” to that of the first quarter.

“It is also possible that we pull a rabbit out of the hat and are slightly higher,” he said then.

But Musk recently warned of recession risks. He told the entire company it would be a pretty intense quarter as the COVID restrictions in Shanghai brought “a huge challenge” and the factory was only returning to full production, the Electrek news site reported on Thursday.

Last week, he told Tesla executives in an email that he had a “super bad feeling” about the economy and needed to cut jobs by about 10% and freeze hiring.

In a follow-up email to employees, he said Tesla had become “overstaffed in many areas” and that Tesla would reduce the salaried workforce by 10%. But in a tweet on Saturday, he backtracked and predicts that the company’s total headcount will increase over the next 12 months.

Analysts have warned that Tesla’s first-quarter gross profit margin of nearly 33% is unlikely to hold up in the current quarter due to rising raw material costs and the Shanghai lockdown.

Tesla shares have fallen nearly a third since the start of the year.

With the recent easing of COVID restrictions in Shanghai, Tesla has managed to increase weekly production at its factory to more than 90% of the level before the city’s lockdown, which closed the factory for a record 22 days, people familiar with the case told Reuters.

The electric carmaker originally planned to increase daily production to 2,600 units in mid-May but was unable to do so until the end of the month, said the people, who declined to be identified because the matter is private.

The factory has been operating under so-called closed-loop management that has forced workers to sleep close to production lines and out of contact with others outside since mid-April.

Tesla aims to produce 17,000 cars a week from June 13, when it plans to end the closed-loop system and allow workers to resume their journeys between their home and the factoryaccording to an internal memo seen by Reuters.

The Shanghai factory manufactures Model 3s and Model Ys for sale in China and for export to markets such as Europe and Australia.

Last year, cars made in China by Tesla accounted for about half of the 936,000 vehicles delivered worldwide, according to Reuters calculations using data from the China Passenger Car Association.

Customers in Australia now have to wait nine to 12 months for their Model 3, while those in Europe cannot pick up their car until the fourth quarter of this year at the earliest, according to its website.

For buyers in China, the wait time for Tesla cars made in China is between 10 and 24 weeks, according to the website.

(Reporting by Zhang Yan and Brenda Goh; Editing by Kim Coghill)

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