Tesla has told employees and some suppliers to prepare for an extension of production limits through April, according to Bloomberg.

(Image credit: CnEVPost)

Tesla (NASDAQ: TSLA) has reduced production of electric vehicles (EVs) at its China factory amid sluggish growth in new energy-vehicle (NEV) sales and fierce competition in the market, Bloomberg said in a report today, citing people familiar with the matter.

Tesla instructed employees at its Shanghai plant earlier this month to reduce production of the Model Y and Model 3 by working five days a week instead of the usual 6.5 days, according to the report.

The production lines run on two daily 11.5 hour shifts, which remains unchanged, according to the report.

The output cuts began earlier this month, and staff have yet to get a clear update on when production will return to normal, the people familiar with the matter said.

Some production lines at Tesla's Shanghai factory, including the battery workshops, are subject to longer suspensions, according to the report.

Tesla has told employees and some suppliers to prepare for the extension of production restrictions through April, the report said, adding that early April will see the Tomb Sweeping Day in China, a holiday that is also usually a slow season for consumption.

This year's Tomb Sweeping Day holiday will be April 4-6, and April 7 will be a working day, albeit a Sunday.

Tesla has a factory in Shanghai that produces the Model 3 and Model Y, both for deliveries to local customers and as an export hub.

The factory has an annual capacity of more than 950,000 vehicles, its largest in the world, according to the company's third-quarter financial report, which was released in October 2023.

Tesla sold 30,141 vehicles in China in February, down 11.15 percent year-on-year and down 24.42 percent from January, according to the China Passenger Car Association (CPCA). This was partly due to the disruption caused by the February 10-17 Chinese New Year holiday.

The company exported 30,224 vehicles from China in February, down 25.33 percent year-on-year and down 4.25 percent from January.

In January-February, Tesla sold 70,022 vehicles in China, up 15.23 percent year-on-year, according to data compiled by CnEVPost. Its Shanghai factory exported 61,790 vehicles in the first two months, down 22.46 percent from a year earlier.

The beginning of the year is usually a slow season for auto sales in China, especially the month where the Chinese New Year holiday falls.

In January-February, China's retail sales of NEVs, including battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs), amounted to 1.06 million units, up 37.42 percent year-on-year, according to the CPCA.

Retail sales of BEVs during this period were 600,000 units, up 18.06 percent year-on-year, while retail sales of PEHVs were 459,000 units, up 74.93 percent year-on-year.

China's NEV market is gradually recovering starting this month, with the CPCA saying yesterday that it expects China's March NEV retail sales to be 750,000 units, up 93.2 percent from February.

On January 12, Tesla cut the prices of both versions of the Model 3 in China by as much as nearly 6 percent and two of the three versions of the Model Y by as much as 3 percent amid fierce price competition.

The Model 3 is available in two versions in China -- an entry-level rear-wheel drive version and a dual-motor, all-wheel drive, long-range version -- with current starting prices of RMB 245,900 ($34,000) and RMB 285,900, respectively.

The Model Y is available in three versions in China -- a basic rear-wheel drive version, a dual-motor all-wheel drive Model Y Long Range version, and a dual-motor all-wheel drive Model Y Performance version -- with starting prices of RMB 258,900 ($34,000), RMB 299,900 ($34,000), and RMB 363,900 ($34,000), respectively.

On February 19, the second working day after the 2024 Chinese New Year holiday, BYD (HKG: 1211, OTCMKTS: BYDDY) launched lower-priced Glory Editions for the Qin Plus and the Chaser 05, marking the launch of its latest round of major model updates.

BYDY has already updated a number of models, all of which have seen significant price drops. While it said the move is aimed at gaining more share from traditional gasoline vehicles, it's also putting pressure on other EV makers.

A number of car makers, including Nio (NYSE: NIO), Xpeng (NYSE: XPEV), Li Auto (NASDAQ: LI), Polestar (NASDAQ: PSNY), Neta, and IM Motors, have been involved in the price race so far this year in different ways.

Tesla did not continue to cut prices after China's Lunar New Year holiday, but started a promotion on March 1, offering benefits including a RMB 8,000 insurance subsidy.

On March 20, local media outlet Cailian cited Tesla China insiders as saying that the US EV maker will increase prices in China on April 1, with the Model Y's price to be hiked by RMB 5,000.

Tesla's current insurance subsidy of RMB 8,000 and paint reductions of up to RMB 10,000 for stock vehicles will expire on March 31, the report noted.

The upcoming price hike would mean that the actual cost for consumers to buy a Model Y will rise by as much as RMB 23,000, according to the report.

Tesla has not responded to the report, though it looks as if it's aimed at prompting potential customers who are still on the fence to place an order, as it has done previously.

Yesterday, Li Auto (NASDAQ: LI) said it now expects to deliver between 76,000 and 78,000 vehicles in the first quarter, down from 100,000 to 103,000 previously, due to lower-than-expected order intake.

Li Auto's move was more a result of its overly optimistic estimates ahead of the March 1 launch of its first BEV model, the Li Mega MPV (Multi-Purpose Vehicle), as well as its updated 2024 models.

($1 = RMB 7.2299)

Tesla to raise Model Y price in China on Apr 1, report says