The output cuts will take effect as soon as this week, said the people, who asked not to identified because the information isn’t public. They estimate the move could reduce production by about 20%.

The decision was made after the automaker evaluated its near-term performance in the domestic market, one of the people said, adding that there’s enough flexibility to increase output if demand increases. 

A Tesla representative in China declined to comment.

The trims mark the first time Elon Musk’s EV pioneer has voluntarily reduced production at its Shanghai plant, with previous reductions caused by the city’s two-month Covid lockdown or supply chain snarls. However, recent price cuts and added incentives such as insurance subsidies, along with shorter delivery times, suggest demand has failed to keep up with supply after an upgrade doubled the plant’s capacity to about 1 million cars a year.

Tesla’s China deliveries fell in October after a reaching a record high in September.

Full production capacity at the Shanghai factory is around 85,000 vehicles per month, Junheng Li, chief executive officer of equity research firm JL Warren Capital LLC, said in a Nov. 22 note. “Without more promotions, new orders from the domestic market will likely normalize to 25,000 in December,” she said, adding increased production couldn’t all be absorbed by exports.

Tesla is facing intensifying competition from local automakers such as BYD Co. and Guangzhou Automobile Group, which are raising prices, in the world’s largest EV market. BYD posted a ninth consecutive month of record sales in November, with deliveries topping 230,000, including almost 114,000 pure-electric models. 

Tesla’s reliability is also back in the spotlight after suffering two recalls in China in the past month, requiring both over-the-air software fixes and some vehicles to be returned for maintenance. A recent fatal crash involving a Model Y that killed two people has again sparked discussion over Tesla’s safety record.