Tesla’s record-breaking delivery streak could hit the end of the road

Model Y cars are pictured during the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany March 22, 2022. Patrick Pleul/Pool via REUTERS

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SAN FRANCISCO, June 30 (Reuters) – Tesla Inc (TSLA.O) is set to end its nearly two-year streak of record quarterly deliveries as an extended COVID-related shutdown in Shanghai hit its production and supply chain. supply, underlining the risks of its dependence on China.

As Tesla chief executive Elon Musk pursues acquisition of social media platform Twitter Inc (TWTR.N), his gem, Tesla, is struggling with production issues in China and slow growth production in new factories in Texas and Berlin.

Analysts expect Tesla to announce second-quarter deliveries of 295,078 vehicles as early as Friday, according to Refinitiv data. Several analysts have further reduced their estimates to around 250,000 due to China’s prolonged lockdown.

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That would be down from its record deliveries of 310,048 in the previous quarter, marking Tesla’s first quarterly drop in deliveries since the first quarter of 2020.

The world’s most valuable automaker has posted record deliveries every quarter since the third quarter of 2020, weathering the pandemic and supply chain disruptions better than most automakers.

China has been instrumental in rapidly ramping up Tesla’s vehicle production, and Musk praised workers there for “burning the 3 a.m. oil.”

But China’s prolonged zero COVID lockdown — Wedbush analyst Dan Ives called it Tesla’s “albatross” this quarter — has caused deeper disruptions to production than Musk had anticipated. Tesla’s low-cost and lucrative factory in Shanghai produced about half of the total number of cars the company shipped last year, and Ives estimated the shutdown wiped out about 70,000 units in the quarter. Read more

Musk said in April that Tesla’s overall vehicle production in the second quarter would be “roughly on par” with the first quarter, driven by a rebound in China. But he recently said Tesla had a “very difficult quarter”, citing production and supply chain issues in China.

Musk also said Tesla’s new factories in Texas and Berlin are “gigantic money furnaces” losing billions of dollars as they struggle to rapidly ramp up production. He said the automaker’s supply chain issues were unresolved and the operation of factories remained a concern. Read more

“The key question is the extent of the decline (in Chinese production) and whether the Fremont, California plant was able to help support volumes,” said Garrett Nelson, analyst at CFRA Research.

He expects volumes to rebound strongly in the second half as Tesla ramps up production at the Shanghai factory with the easing of a COVID-19 lockdown.

Gene Munster, managing partner at venture capital firm Loup Ventures, was cautious about the outlook, saying the third quarter will be tough for Tesla and other tech companies, citing recession risk.

Tesla has laid off hundreds of employees in the United States, after Musk told executives earlier this month he had a “super bad feeling” about the economy and needed to cut about 10% of the staff of the electric car manufacturer. Read more

Nonetheless, Musk said demand for Tesla vehicles remains strong.

Tesla shares have fallen 37% since early April, hurt by Musk’s Twitter deal and China’s lockdown. Tesla shares fell 0.3% to $683.26 on Thursday.

Musk, a prolific Twitter user who passed the 100 million follower mark this week, hasn’t tweeted in over a week.

Cowen analyst Jeffrey Osborne said in a report that “investors are growing weary of Elon’s rants” on the Twitter saga, politics and other topics.

“A lot of people we talk to wonder if we’ve reached ‘Elon Peak’.”

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Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru Editing by Ben Klayman and Matthew Lewis

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