Investors have a pair of seemingly conflicting
data points to reconcile on Monday. One is impressive. It’s about production. The other is concerning. It’s, potentially, about demand.
First the bad news. On Monday Bloomberg reported that
(ticker: TSLA) will cut December Model Y production at its Shanghai plant in China by 20% compared with November, citing people with knowledge of the production schedule.
Tesla didn’t immediately respond to a request for comment about the potential cut.
The Model Y is Tesla’s most popular vehicle and a reduction in output will create some unease for investors who will wonder why its happening.
The issue could be the supply chain. Many auto makers, including Tesla, have faced production disruptions from China’s zero-Covid policies. Tesla was forced to shut its Shanghai plant in early April.
) reduced production early in the year and again in November due to Covid-related issues.
The issue could be mix-related. Tesla produces Model Y and Model 3 vehicles in China. Tesla could be making more Model 3s.
The issue could also be Chinese demand. Government EV purchase incentives are ending in China starting in January. In the past when incentive levels were reduced, it led to a boom at the end of a year and a bust at the start of the next.
Subsidy levels were cut at the end of 2021.
(LI) delivered about 40,000 units combined in December. That number fell to about 35,000 in January and then 21,000 in February of 2022. It took until June for combined deliveries to top December levels.
Sales of electric vehicles (EVs) in China have grown in 2022 compared with 2021, despite subsidy cuts. NIO,
and Li sales are up about 37% year over year as EV penetration of new car sales has increased in 2022.
The good news for Tesla investors is that the cut, if there is a cut, is coming off record production levels. Tesla produced 100,291 vehicles from its Shanghai plant in November, according to Chinese Passenger Car Association (CPCA) data. That’s a new record. Tesla produced 83,135 vehicles from the plant in September and 71,704 vehicles in October.
Tesla fulfills demand for both European and Chinese markets from the Shanghai plant. Which vehicles went where won’t be known for a few more days. CPCA typically releases that split around the 10th of any month.
Month-to-month production fluctuations are a concern for investors, but what they want to see is Tesla deliver about 1.4 million vehicles in 2022 and about two million in 2023.
Recent production figures show that both things are possible, but the wild card will be consumer demand in the U.S., Europe, and China.
Tesla stock was down 1.7% in premarket trading Monday.
Dow Jones Industrial Average
futures were both down about 0.4%.
So far this year, Tesla stock is down about 45%. A combination of rising interest rates and inflation have hit car-related stock harder than most.