Tesla CEO Elon Musk at a delivery ceremony for China-made Model 3s in Shanghai on January 7, 2020.
Work at Tesla’s Shanghai auto plant that just opened this month has been ordered to temporarily stop as China moves aggressively to limit the coronavirus outbreak.
The Silicon Valley electric-car maker led by Elon Musk said on an earnings call Wednesday that production of Model 3 sedans has stopped for now due to government requirements. The shutdown should be less than two weeks, according to CFO Zach Kirkhorn.
The company is “in the early stages of understanding if and to what extent we may be temporarily impacted by the coronavirus,” Kirkhorn told analysts and investors. Tesla had a $105 million fourth-quarter profit with results that came in slightly above consensus expectations.
“We’re expecting a one- to one-and-a-half-week delay in the ramp of the Shanghai-built Model 3 due to a government-required factory shutdown. This may slightly impact profitability for the (first) quarter, but it’s limited as the profit contribution from Model 3 (from) Shanghai remains in the early stages,” he said.
Tesla had ignored multiple requests from Forbes for information on the status of Shanghai earlier in the week.
As the world’s largest auto and EV market, China has been a target for Tesla since it began building Model S sedans in 2012. A delighted Musk flew to Shanghai for a January 7, 2020, ceremony marking the start of deliveries of locally built vehicles to Chinese customers, at one point flinging off his jacket and briefly boogying onstage for his audience. The company said in its fourth-quarter results call that aside from the brief work stoppage, plans to ramp up China production are going “as expected.”
So far more than 6,100 people have fallen ill and there are over 130 deaths linked to coronavirus. The outbreak is centered in Wuhan in Hubei Province, a region that’s a big supplier of vehicles and auto parts.
“In the short term, foreign vehicle makers–especially those with joint ventures in the Wuhan area–will be considering pulling their foreign staff out of China operations,” said David Leggett, automotive editor for analytics service GlobalData. “Companies with major manufacturing operations in Hubei include Groupe PSA, Renault, Nissan and Honda. The days following the now-extended Chinese Lunar New Year holiday (with a return to work next week) will be key in terms of assessing the impact on manufacturing operations and worker absentee levels.”
“There will be potential knock-on impacts for automotive supply lines if parts companies are unable to fulfill orders,” Leggett said.
Kirkhorn didn’t comment Wednesday on whether Tesla is restricting travel of employees to and from China or temporarily bringing some back to the U.S. For now, the company doesn’t expect a significant financial impact from the outbreak and is monitoring whether there could be parts supply-chain interruptions at its plant in Fremont, California.
“We’re not aware of anything material, but it’s important to caveat that this is an evolving story,” he said in prepared remarks. “We have more than sufficient cash to continue our expansion plans while further strengthening the balance sheet.”
Workers build a Model 3 at Tesla’s Shanghai plant.
