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Tesla Set to Reopen Its Shanghai Factory

The high-end electric vehicle manufacturer is about to put a big problem behind it.
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This is news that will undoubtedly remove the few rare clouds that block Tesla's  (TSLA) - Get Free Report 2022 horizon. 

Elon Musk's company was set to have an exceptional year both in terms of production and vehicle deliveries. Estimates from analysts and industry sources were anticipating a record vintage. 

Tesla would deliver at least 1.42 million vehicles in 2022, experts agreed last month. 

Their projections were based on the fact that the market leader in electric vehicles had accelerated production by doubling its manufacturing capacities with the official opening of its German factory near Berlin and the vehicle manufacturing site in Austin, Texas.

In all, Tesla now has four production sites — Fremont in California, Shanghai in China, Berlin and Austin — suggesting the automaker can produce at least two million vehicles a year if those plants are running at full capacity. 

Last year, Tesla produced 930,422 vehicles and delivered 936,172 cars with just two factories in operation.

A Shortfall of at Least 37,800 Vehicles in 18 Days

But the beautiful machine and the its gear jammed on March 28, when Tesla was forced to close its Shanghai factory to comply with lockdown measures during a resurgence of the pandemic.

This suspension is a real headache for Tesla, as the impact is colossal. And the longer the factory remains closed, the greater the consequences.

The factory produces about 2,100 EVs a day,  which amounts to about 37,800 vehicles lost from production as of April 15, according to calculations made by TheStreet. 

That 37,800 fewer vehicles represent nearly 21% of the vehicles Tesla sold in China in the first quarter.

Tesla's Shanghai factory, which opened in January 2020, delivered 65,814 EVs in March, thus closing on a good a very solid first quarter. 

Indeed, Tesla had delivered 59,845 units in January and 56,515 copies in February. In total, the automaker delivered 182,174 Made-in-China vehicles in the first quarter, according to the China Passenger Car Association (CPCA).

The factory, which is being ramped up to eventually produce 1 million EVs each year, serves not only the local market but also other Asian countries and Europe.

Wait Time For Model 3 Drops To Two Weeks In All-important China Market, As Tesla Speeds Up Production In Shanghai

But the company is in the process of limiting the damage. Tesla is preparing to reopen the factory next week. Musk's group has warned some employees that production is expected to resume on April 17. This recovery, which would take place while the lockdown is still in effect, would take place in the form of the "closed-loop".

Closed-loop operation means that all the workers stay in the plant all the time. Employees live, work and sleep in isolation from the rest of the world, and especially from their families, to prevent the spread of the virus.

To achieve this Tesla got the green light from the authorities, reports Reuters.

"The plan for resuming production has the blessing of local authorities but could still be subject to change depending on how the epidemic situation develops in the city, said the people, who declined to be named as the matter is private," Reuters warned.

Tesla's Gigafactory in Shanghai on December 2, 2019. Photo: Reuters

One Shift to Begin With

If there is no change by April 17, Tesla is only expected to partially resume production with one shift. The company will reassess the situation a little later to determine whether to bring everyone back or not.

Tesla did not immediately respond to a request for comment from TheStreet.

A partial resumption of production is good news for Tesla because it comes at a time when demand for electric vehicles is strong. 

But the group remains vulnerable to what is happening with its suppliers, because logistics have been completely disrupted by the return of the pandemic. It is not certain that all suppliers of components that Tesla needs are operational.

Besides Tesla, Nio  (NIO) - Get Free Report and Volkswagen  (VWAGY) - Get Free Report also have their production halted. It is unclear at this time when the two vehicle manufacturers expect to reopen their respective factories. 

General Motors  (GM) - Get Free Report and its partner SAIC had opted quite early for "closed-loop," sources close to the matter told TheStreet last month.

Production in the SGM (GM-SAIC joint-venture) plant in Shanghai will continue with the appropriate health measures in place, the sources said.

According to the Shanghai government’s pandemic control measures, companies are required to operate either in closed-loop if necessary, or have their employees work from home.