Tesla’s half-idle Shanghai factory exposes strain in China’s commercial hub as Covid-19 lockdown enters fourth week

Giga Shanghai’s inventory of components can support just a week’s worth of production, sources say
It will take Shanghai-based carmakers such as Tesla some time to fully restore their supply chains and run at full capacity: analyst

Tesla

Daniel Renin Shanghai

Published: 7:00pm, 21 Apr 2022

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US electric vehicle (EV) maker Tesla’s Shanghai factory is assembling 1,000 vehicles a day – just half of its output before the city’s latest Covid-19 outbreak – after resuming work this week. Production at the facility was suspended for 22 days because of a citywide lockdown.

At its Gigafactory 3 in the Lingang free-trade zone, 8,000 workers have been convened to build its bestselling Model 3 and Model Y EVs, but only half of the workforce can be fully utilised in a single shift, because Tesla still does not have adequate components for a full resumption, two industry officials with knowledge of the matter said.

The plant, which is also known as Giga Shanghai, suspended operations late last month and had not assembled a single EV until it restarted operations on Tuesday afternoon and could only tap an inventory of components that can support just a week’s worth of production, the officials said.

“A large-scale carmaker like Tesla is supposed to have an inventory for at least two weeks of production when it is in normal operation,” said David Zhang, a researcher at the North China University of Technology. “It will be some time before Shanghai-based carmakers like Tesla, Volkswagen [VW] and General Motors [GM] can fully restore their supply chain and run at full capacity.”

Elon Musk says Giga Shanghai could produce 180,000 units between April and June, or as many EVs as it did in the previous quarter. Photo: AFP/Getty Images/TNS

It is expected that it might take the US carmaker several weeks to get the assembly line running at full capacity. Normally, Giga Shanghai has two shifts that can together churn out more than 2,000 EVs a day. Tesla has been hiring new workers and expanding facilities at the plant to increase its capacity.

Song Gang, a senior director of manufacturing at Giga Shanghai, told state-owned Shanghai Television on Tuesday that Tesla could deploy a single shift to run at full capacity in three to four days.

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Giga Shanghai, Tesla’s first beachhead outside the United States, began producing Model 3s towards the end of 2019 and has become a major production base for Elon Musk’s EV powerhouse. It produced 484,130 vehicles last year, including those for export, representing 51.7 per cent of the company’s global total of 936,000 units for 2021.

Tesla has incurred a loss of about 50,000 units during the 22-day hiatus in production. Its facility suspended operations on March 28 after it failed to secure enough components and protective gear for workers to operate in a so-called closed-loop system, where workers essentially live on-site to avoid contact with outsiders.

The resurgence of Covid-19 in Shanghai since March 1 forced the city’s municipal government to impose a de facto citywide lockdown on April 1. Shanghai has yet to end the lockdown, but last weekend allowed 666 key manufacturers including Tesla to resume production under the closed-loop system.

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But carmakers such as Tesla and VW still face difficulties in securing enough raw materials since the lockdown has prevented trucks from plying between Shanghai and its surrounding areas, where hundreds of vendors are based.

On Monday, Chinese Vice-Premier Liu He ordered the creation of a nationwide test pass, and additional passes for trucks were distributed so that cross-provincial transport could resume.

“But control measures will still slow down the flow of cargo and, in some cases, small vendors may already be facing a cash squeeze and might be unable to provide enough car parts,” said Gao Shen, an independent analyst in Shanghai.

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Musk, however, said on Wednesday that Giga Shanghai could produce 180,000 units between April and June, or as many EVs as it did in the previous quarter.

Other Shanghai-based carmakers including SAIC Motor, mainland China’s largest state-owned car company, and its ventures with GM and VW, have also fallen victim to a choked supply chain. An inadequate inventory has prevent them from fully using their production capacities as well.

An assembly line operated by VW’s venture in northwestern Jiading district lost 60 per cent of its capacity in March when it was operating under the closed-loop system, according to industry sources.

Shanghai, the country’s “Motown”, churned out 2.8 million vehicles in 2021, 10.7 per cent of the nationwide output in the world’s largest vehicle market. Thousands of automobile supply chain companies are based in the city or neighbouring cities such as Kunshan in Jiangsu province.

Last week, He Xiaopeng, co-founder and CEO of smart EV start-up Xpeng Motors, said that all of China’s vehicle assemblers would have to suspend production by May if supply chain constraints caused by Shanghai’s lockdown were not resolved soon.