Resumption at Tesla Shanghai factory faces great challenge from virus control

Source:Global Times Published: 2020/2/9 22:54:12

File photo

US electric carmaker Tesla's Shanghai Gigafactory will resume production on Monday. This is, of course, good news for local authorities that are currently making all efforts to contain the spread of the novel coronavirus pneumonia (NCP) outbreak while helping companies restart operations as soon as possible.

Yet, it should be made clear that under the current circumstances, Tesla's resumption of work doesn't necessarily mean that its production will return to the normal level immediately. It would be hard to tell how much production capacity can be restored at Tesla's high-profile Shanghai plant without the support from its upstream supply chain.

If anything, the outbreak will be a test for Tesla in terms of the flexibility of its supply chain. Any disruption to supplying irreplaceable parts may lead to production and sales delays in the future. While it remains unclear when the current epidemic will be contained, there is still hope that Tesla's resumption of work could help bring relevant supportive businesses back to normal in a safe and timely manner.

To a certain extent, the development of the epidemic will have a major impact on Tesla, which could be reflected not only in the uncertainty of its delivery, but also in its market valuation. 

In fact, the China factor will be one of the key reasons affecting Tesla's share price in the months to come, especially following its roller coaster performance last week. After soaring to a historical high of $968.99 on Tuesday, Tesla's shares plummeted by 17.18 percent the next day as fears of production and sales delays at its Shanghai plant plunged the shares due to the outbreak of the NCP. Tesla's China vice president Tao Lin announced on Weibo that deliveries of cars in early February will be delayed.

For a long time, China's growing market for electric vehicles has been a big drive behind Tesla's ballooning shares, especially since deliveries of its Model 3 started at the Shanghai Gigafactory in January.

While Wall Street bulls lifted Tesla's shares to make the company the most valuable carmaker in the US, inflicting heavy losses on short sellers, and the bears like hedge fund Greenlight Capital still believe that its share price has diverged significantly from its weak fundamentals, which has become a speculative bubble.

Generally speaking, it remains to be seen how it will take for Tesla's supply chain to resume work and offer the support essential for its production to return to normal, because without supporting supplies, further production and sales delay could be expected, which is likely to exert further pressure on its cost. Whether the Chinese market and its Shanghai factory will continue to be an important support for share buyers or a new source of fears over production delays will largely depend on the development with the NCP. 

The challenge facing Shanghai in terms of prevention and controlling the virus is also the challenge for Tesla to get back to work. No matter how difficult it will be, local authorities and companies have to keep moving in the same direction.

Posted in: GT VOICE

blog comments powered by Disqus