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Tesla’s China Plant Facing More Disruptions From Covid Lockdown

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·4-min read
Tesla’s China Plant Facing More Disruptions From Covid Lockdown
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(Bloomberg) -- Tesla Inc.’s China factory is experiencing some disruptions and may see more curbs to production this week as Shanghai’s long-running Covid-19 lockdown continues to impact supply chains.

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The U.S. carmaker is having some issues with logistics, a spokesman for its China operations said Tuesday. Reuters reported earlier that output at the plant south of Shanghai had been halted, prompting Tesla to say it had received no notice the factory had ceased to operate and that some cars were still being made there.

Tesla’s China factory was shuttered for three weeks in April as Shanghai was plunged into lockdown in an attempt to halt an outbreak of Covid. The plant started up again in late April under a so-called closed loop system whereby workers live on site and are tested regularly, but Shanghai largely remains in lockdown, presenting challenges for delivery of supplies and materials.

Read more: Tesla Looking to Boost Shanghai Car Production With Second Shift

The automaker shipped just 1,512 vehicles out of Shanghai last month, amid a 35.7% slide in overall passenger car sales in China, the biggest plunge in two years, data Tuesday showed.

Prior to the lockdown-induced halt on March 28, Tesla workers in Shanghai were working three shifts covering 24 hours, seven days a week. The workers in the current closed-loop system have been doing 12-hour shifts, six days a week.

Though the shift is meant to be 12 hours, a shortage of some parts means most days work has had to stop after about eight hours, a person familiar with the situation said.

And while workshops at the EV maker’s China plant were operating on Tuesday, the situation is fluid and logistics problems may force production to cease entirely later this week, the person said, declining to be identified because the details are private.

One of the problems stems from a shortage of wire harnesses from Aptiv Plc, which had to stop shipping supplies from a plant that supplies Tesla and General Motors Co. after infections were found among its employees, Reuters reported.

When asked about the reduced 12-hour shift, a Tesla representative said the company would provide updates when necessary.

Tesla’s Shanghai factory, which in regular times pumps out around 2,100 cars a day, remains challenged by component shortages, other people familiar said last month. Then, the automaker only had inventory for just over two weeks based on its current closed-loop schedule and logistics were a major problem for many other parts.

Export Hub

China’s Passenger Car Association said Tuesday that Tesla produced 10,757 cars last month, since resuming production on April 19, equal to a run rate of about 900 cars a day.

The China plant, Tesla’s first outside of the U.S., is an increasingly vital cog in its global operations, with cars made there not just sold in the country, but exported to markets in Asia and Europe.

Of the Tesla cars shipped from its China factory in April, however, none were exported, a reflection of the reduced output levels. By way of comparison, Tesla shipped 65,814 electric cars from Shanghai in March, and in January and February exported an average of 36,900 EVs to other countries in Asia and parts of Europe.

China’s zero-tolerance approach to the virus is increasingly disrupting the world’s second-largest economy and leaving the country isolated as the rest of the world accepts Covid as endemic and normalizes. The so-called Covid Zero policy has become harder to deploy in the face of more contagious variants, leading to more intense restrictions -- like lockdowns -- in order to quash community spread.

Read more: Six Moves That May Signal China Is Abandoning Covid Zero

More than 15% of U.S. companies with operations in Shanghai reported their businesses there remain fully shut, according to a survey conducted by the American Chamber of Commerce in China between April 29 and May 5. Nearly 60% of respondents, who have operations throughout China, said production capabilities were slowed or reduced due to a lack of employees, difficulty in get supplies, or government-ordered lockdowns.

(Updates with new headline; April shipment, sales data from fourth paragraph.)

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