Tesla’s key Shanghai gigafactory shut down amid China Omicron surge

March 16, 2022, 12:38 PM UTC

Tesla halted assembly lines in its factory in Shanghai at the behest of local authorities as the specter of pandemic-related lockdowns stifling economic growth returned to China.

The stoppage, first reported by Reuters, would potentially mean a temporary loss in daily production volume of around 2,000 cars and would stretch across Wednesday and Thursday.

Volkswagen Group, the country’s largest carmaker, confirmed on Wednesday it too had been affected by government orders to cease manufacturing—orders given to buy time for widespread COVID-19 testing of the population.

Due to the combination of an Omicron outbreak in China and the regime’s zero-COVID policy, economists at Morgan Stanley predicted the country’s growth would stagnate completely in the current quarter compared to the final three months of 2021, while UBS warned authorities were likely to err on the side of caution rather than commerce.

“We do not expect China’s government to embark on an all-out stimulus to defend the GDP growth target,” warned UBS in a research note, referring to the 5.5% goal for this year set out by Beijing. “We also do not believe China will easily abandon the zero-COVID policy just for its potential restrictive effect on the economy.”

GigaShanghai, as it is commonly known, is crucial to Tesla’s growth plans. Not only are its cars widely viewed as superior in build quality to those built by the company’s older Fremont factory in California, it also plays a key role as an export hub feeding EV-friendly Europe with Model 3 sedans.

Last month, Reuters cited sources as saying Tesla planned to expand Shanghai this year. Management aimed to install enough capacity to produce around 1 million vehicles annually before doubling that to 2 million in the future by building a new plant in a second site nearby.

Elon Musk, whose Twitter feed doubles as the unofficial communications channel for Tesla, has not confirmed the reported expansion plans.

Volatile but manageable

The head of Volkswagen Group China confirmed each of the main production plants operated by his company’s two local joint ventures were affected by the 48-hour production stop: SAIC-Volkswagen’s Shanghai plant as well as FAW-Volkswagen’s Changchun site in the north.

“We’re planning to restart assembly lines tomorrow, but whether we will be able to return to full production depends on if all our staff will be able to return to work,” Stephan Wöllenstein told reporters on Wednesday during an annual VW brand news conference. 

Other sites were not currently affected, according to the VW exec, even though FAW-VW’s Foshan factory in Guangdong Province is practically next door to Shenzhen, another area hit by COVID.

“The COVID situation across the country is volatile, but we believe at present that we will be able to manage,” Wöllenstein said. 

He added Volkswagen Group China’s annual production plans remain intact, as lost volumes could quickly be recovered once the situation returns to normal.

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