Tesla Shares Drop on Disappointing Deliveries and Plant Downtime

Ticker Symbol: TSLA

The largest electric vehicle manufacturer in the world, Tesla Inc, announced over the long July 4th weekend that quarterly deliveries for the second quarter were 254,695 cars worldwide, missing the average analyst forecast of 261,387 cars. Additionally, the company announced that it would halt production in numerous plants to upgrade factories and boost output. Shares were down 3% in mid-morning trading and are off almost 50% from their all-time high.

Despite deliveries missing expectations, production during June was robust, with the company stating that output hit a record during the month. This may be an indication that the miss on deliveries in the second quarter was potentially an aberration, and that a swift manufacturing recovery is possible. Tesla’s volumes have been impacted by COVID 19-related shutdowns affecting the Shanghai plant, which is the company’s most productive factory.

The company also announced that it would pause production on its Model Y assembly line in the first two weeks of July, followed by an almost 3 weeks pause of the Model 3 line in Shanghai. Furthermore, news reports out of Germany suggest that production at the carmaker’s plant near Berlin would also be stopped for two weeks starting on July 11th. The company has two other plants, for a total of four across its global footprint. Its original plant in Fremont, California should continue production uninterrupted, and its plant near Austin, Texas is still not fully operational.

Recent commentary from Chief Executive Officer Elon Musk has served to dampen investor sentiment on the company. In a May 31st interview, the CEO mentioned that “Berlin and Austin are losing billions of dollars right now because there’s a ton of expense and hardly any output.” Additionally, the CEO has been voicing his concern about a global recession. The company laid off 200 workers in a California facility recently. Musk also stated recently that the company would reduce its salaried workforce by 10% in three months.

Notwithstanding the issues with the sentiment, management has prioritized its focus on ramping up production in Shanghai which may be the most important factor in near-term performance. The company took extraordinary steps to ensure that the factory could remain open despite the Chinese government’s zero-COVID policy, with thousands of workers sleeping and living at the plant to maintain at least some production, highlighting the importance of China to Tesla’s overall financial health and output.

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