Chinese woes for Tesla: EV maker cancels second production line due to lacklustre demand 

Tesla has revealed that there will not be boosting capacity at its Shanghai Gigafactory to produce more cars and will be cancelling the second production line they had planned. This is mainly because they are facing some seriously tough competition from local, Chinese EV makers. Evidently, unlike in the US, even heavy discounts on their EVs aren’t getting Tesla as many takers for their EVs as they had hoped for.

After posting record quarterly earnings for the three months that ended on December 31, the Texas-based EV behemoth claimed in a statement that “production and delivery issues in 2022 were mostly centred on China.” Since our facility in Shanghai has been effectively operating at or close to capacity for a number of months, we do not anticipate a material sequential volume rise in the near future.

The declaration confirms media reports that surfaced earlier this month that the premium EV maker has delayed adding a new assembly line to its Gigafactory 3 facility in Shanghai’s Lingang free-trade zone due to a gloomy sales forecast.

Tesla had suspended its preparations for a second production line when it was denied permission by Chinese officials. The new line was expected to double the Shanghai Gigafactory’s capacity to 2 million units a year, but because China’s economic outlook doesn’t look that good, Tesla has decided not to pursue this matter for the time being.

Last year, Tesla began developing plans to enlarge its Shanghai facility in response to strong domestic sales of its domestically produced Model 3 and Model Y EVs. However, competition has been very tough for Tesla in China.

 At the same time, 2022 saw China suffer from a period of economic uncertainty. Faced with increased worries about shrinking wages and low job prospects across the country, Chinese car buyers have opted for cheaper EV models sold by domestic carmakers like BYD since late last year.

Tesla’s biggest competitor is likely to be a Chinese company, chief executive Elon Musk said on a call with analysts on Thursday after the US firm reported its latest quarterly earnings, according to a Bloomberg report. 

Asked about Chinese car companies, Musk said they “work the hardest, and they work the smartest,” describing them as the most competitive in the world. “If I were to guess, probably some company out of China is the most likely to be second to Tesla,” he said.

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