Amid sluggish sales, Tesla cutting production in China

Tesla Inc. has reduced production at its plant in China, according to people familiar with the matter, amid sluggish growth in electric-vehicle sales and intense competition in the world’s biggest auto market.

The U.S. automaker earlier this month instructed employees at its Shanghai facility to lower production of both the Model Y and Model 3 — the two vehicles Tesla makes in China — by working five days a week instead of the usual 6 1/2 days, the people said, asking not to be identified because they’re not authorized to speak publicly.

The production lines run on two 11.5-hour shifts per day, which remains unchanged. Output has been trimmed starting earlier this month, the people said, and staff haven’t been given clear indication of when production will go back to normal.

Tesla representatives didn’t respond to requests for comment. The automaker’s stock — already the worst performer in the S&P 500 Index this year — slumped as much as 3.9% before the start of regular trading Friday.

While overall passenger-vehicle sales in China increased 17% in the first two months of the year, and sales of new-energy vehicles rose 37.5%, Tesla recorded a decline in shipments from the same period a year ago.

Elon Musk’s automaker is up against increasingly stiff competition in China, not only from homegrown competitor BYD Co. Ltd., but from a raft of other EV manufacturers churning out more affordable and tech-laden vehicles.

Tesla relies predominantly on two models first unveiled before 2020 to compete in China. The company did update the Model 3 sedan and Model Y sport utility vehicle in the second half of last year.

Demand for electric cars has been slowing in China and other major regions, including the United States and Europe. Tesla’s factory on the outskirts of Shanghai makes cars both for the domestic market and for export.

Some of the production lines at Tesla’s Shanghai plant, including the battery workshops, are subject to longer suspensions, one of the people said. Tesla has told staff and some suppliers to be prepared for extended production limits through April. In early April, China will celebrate Tomb Sweeping Day, a holiday that’s typically a quiet time for consumption.

Tesla delivered 131,812 vehicles in the first two months of 2024, a 6% drop from the same period a year ago, data released by China’s Passenger Car Association show. Only 53% of shipments went to the local market, despite price cuts Tesla has been carrying out since the start of the year.

Tesla also has continued to offer incentives for local buyers following an in-advance price-increase announcement for the Model Y in an attempt to spur sales before the first quarter wraps up.

Growth of electric-car sales in China is slowing after the government stepped away from a decade-long promotion of the sector and ditched nationwide subsidies at the end of 2022.

Shipments of new-energy vehicles to dealers are projected to increase 25% to 11 million units this year, the PCA has said. While still expanding, that’s a slowdown from 36% in 2023 and 96% in 2022.

With assistance from Jinshan Hong.