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Tesla Temporarily Puts Brakes on Model 3 Production in California

Tesla reportedly halts production of its Model 3 electric cars at its California assembly plant for two weeks as automakers grapple with a widespread chip shortage.

Tesla  (TSLA)  reportedly halted production of its Model 3 electric cars at its assembly plant in Fremont, California, for two weeks as automakers continue to grapple with a widespread chip shortage that has impacted both production and delivery times of new vehicles.

Citing a person familiar with the matter, Bloomberg reported that workers on a Model 3 production line in Fremont were told their line would be down from Feb. 22 until March 7.

A reason for the production halt wasn’t cited, though Tesla last month said that it was trying to mitigate the effects of a global semiconductor shortage on its operations, something other carmakers including Ford  (F)  have been struggling with.

We believe this shutdown is more around chip shortages (and not demand driven) which continues to plague GM and other automakers in the near-term, although it appears improvement from a chip perspective is on the horizon for Tesla and others," Wedbush Securities analyst Dan Ives wrote in a note to clients.

Earlier this month, Ford  said it would cut production of its extremely popular F-15 pickup truck at two plants due to a worldwide shortage of computer chips. General Motors  (GM)  also warned that it may face production delays for the same reason. 

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Jim Cramer also has emphasized that the chip shortage is "very real."

Hitting maximum deliveries is crucial for Tesla in order for CEO Elon Musk to meet his stated goal of selling 20 million cars a year by 2030. Tesla has cut the price of its various models in markets around the globe more than a dozen times this year, generating speculation that the company isn’t seeing the kind of sales uptake it wants.

“When considering Tesla had excess inventory in the fourth quarter of 2020, and has never been able to sell-out its production capacity, we see the company as currently demand constrained rather than production constrained,” GLJ Research founder Gordon Johnson wrote in a research note to clients this week.

Ives took a less negative tone, noting that "...while there is still some supply of Model 3's from the fourth quarter in the Fremont lot and we are not overly concerned this supply chain/factory disruption changes the overall delivery trajectory for 1Q and 2021."

Tesla shares were down 2.13% at $726.24 in trading on Thursday.

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