Tesla has stopped making the Model Y at its gigafactory in Shanghai because Chinese companies that make cheap cars are making fewer people want to buy Tesla’s electric cars.
Nikkei reported that the Texan car company has also told its suppliers to start making parts for Tesla cars outside of China and Taiwan because it is worried that the U.S. elections could lead to higher geopolitical tensions.
The China Association of Automobile Manufacturers show that Tesla’s Chinese factory made 17.7% fewer cars than the same time last year, or 36,610 cars, in March and April. The company opened its gigafactory in Shanghai in December 2019.
The production cuts were made because Chinese buyers of Tesla’s Model Y cars are buying fewer of them because Chinese electric car companies are offering better deals and the Chinese economy is in bad shape, a source told Reuters.
Tesla TSLA, +2.54% stock was up less than 1% in Friday morning trading. It has lost 30% so far this year.
Because of the cuts, Tesla’s overall production from its Shanghai plant fell by 5% in the first four months of 2024. This was due in part to less production of its cheaper Model Y, but also to more production of its more expensive Model 3 sedan.
Due to tough price competition in China, domestic car companies have taken over most of the sales there, leaving Tesla with a smaller share of 6.8% (down from 7.8% last year). BYD Auto, a company in Shenzhen, now has 34.3% of the market, while Tesla has only 6.8%.
In China, Tesla’s base Model Y costs ¥263,900 ($36,440), but BYD Auto, a company from Shenzhen, sells several electric cars for less than ¥100,000. A slowdown in China’s economy has also made people less likely to spend money.
Now, Nikkei reports that six sources say Tesla is telling its suppliers to start moving production of parts and components, such as circuit boards, outside of China. This is to protect against any problems that might arise if relations between the U.S. and China get worse.
A manager at an electronics supplier told Nikkei, “We work with a number of American automakers, and Tesla is the most proactive in trying to avoid the risks that come with China and Taiwan.”
A Chinese business group said earlier this week that China is thinking about putting up to 25% tariffs on foreign-made cars. This comes after the Biden administration said on May 14 that it would put 100% tariffs on Chinese-made electric vehicles.
