It has been a nightmarish year-end for Tesla.
That’s the exact opposite of what its charismatic and visionary CEO, Elon Musk, promised in October.
“We look forward to a record Q4,” Musk told analysts during the company’s third quarter earnings call. “Looks like we’re in for an epic end to the year.”
He added: “The Q4 looks extremely good.”
“I can’t stress enough [that] we have high demand for Q4. We expect to sell every car we make for as far as we can see in the future. So the factories are running at full speed and we’re delivering every single car we make and keeping operating margins strong.”
“Epic” has become an outright disaster.
Production paused in Shanghai
A stock market disaster to begin with. Tesla (TSLA) – Get free report stock lost nearly 37% of its value in December alone, representing a drop of about $226 billion in market value. Over the course of the year, Tesla’s stock is down 65%, much to the delight of short sellers betting on the Model Y and Model 3 maker’s short-term stock market crash.
This fall has had a great impact on the shareholders of the group, the first of which is Elon Musk, whose fortune has completely melted away. The billionaire thus lost the title of the richest man in the world, now claimed by the French businessman Bernard Arnault, CEO of the luxury group LVMH (LVMUY) .
Musk’s net worth has fallen by $132 billion this year to $139 billion as of last year. December 26, according to Bloomberg Billionaires Index.
But as if the year wasn’t already bad, the automaker has just closed its Shanghai factory, which serves Asia and Europe. Production in Shanghai was temporarily halted on 24 December, one day ahead of the scheduled date, to pause vehicle assembly at this location. Tesla planned to halt production in Shanghai for a week, between December 25 and January 1, according to Reuters.
But it is not customary for Tesla to temporarily stop production in Shanghai at this time of year. In 2021, the group of Elon Musk had not interrupted its production during the holiday in Shanghai.
The company has not given official reasons for this temporary closure, but it is clear that it coincides with the full resurgence of the COVID-19 pandemic in China. This new wave of Covid-19 cases comes after the easing of restrictions put in place to limit the spread of the disease.
Workers at Tesla and its suppliers have fallen ill as part of this surge, posing challenges to operations in the past week, Reuters reported, citing anonymous sources.
Demand may be the problem
But the decision may also be connected to a weakened demand in China. The automaker has repeatedly slashed Model 3 and Model Y prices in the country in recent weeks, launched promotional offers and drastically reduced vehicle delivery times. All these signals suggest that production must be higher than demand.
There were also reports that Tesla will reduce production at the Shanghai factory. The move will mark the first time Tesla has voluntarily lowered production levels since the factory opened in 2018, although COVID-19 restrictions and scheduled maintenance cut production earlier this year.
The factory in Shanghai has a production capacity of over 750,000 vehicles per year. Of the 936,222 vehicles delivered by Tesla in 2021, more than half (51.7%), or 484,130, came from the Shanghai factory.
The Austin, Texas-based automaker also appears to be experiencing a demand problem in the United States, the world’s second-largest auto market. It recently doubled, to $7,500, the rebate offered to consumers who buy a new Model 3 or a new Model Y by December 31.
Tesla’s offer is more attractive than the federal tax credit, which goes into effect in 2023, because the government has set draconian criteria for taking advantage of it. The $7,500 tax credit is split in two: $3,750 will apply if at least 40% of the minerals in the battery that powers the vehicle come from the United States or a country that has a free trade agreement with the United States, according to the Inflation Reduction Act (IRA).
The other $3,750 applies if at least 50% of the battery components come from the US or from countries with a free trade agreement with the US
December is supposed to be a record month in terms of production and deliveries for Tesla.
