December 10, 2023


Sapiens Digital

Tesla earnings: Elon Musk addresses Shanghai Gigafactory closure amid Twitter takeover bid


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SAN FRANCISCO — The world is distracted by Elon Musk’s hostile takeover bid for Twitter. That may be serving the Tesla CEO’s purposes well.

Tesla’s Shanghai “Gigafactory,” where it makes some of its electric sedans and crossover SUVs, has been shuttered for weeks as a result of China’s “zero covid” policy, something Musk himself addressed on its earnings call on first quarter results Wednesday. Tesla has also come under fire for no longer including a standard charging cable with its cars, a move that hints at possible supply chain woes — and amounts to what analysts are calling a backdoor price increase.

Meanwhile, Musk has been consumed in recent weeks with a surprise push to take over the social media platform he uses for company announcements and communicating with his more than 82 million followers.

Tesla said in its earnings release Wednesday that “limited production has recently restarted” at the Shanghai plant. Musk added during the company’s earnings call that Tesla’s production could fall slightly in the second quarter because of the impacts of the closure, though he expects the China factory to quickly ramp back up.

“We did lose a lot of work days of production,” he said, though he added that the facility is coming back online “with a vengeance.”

Analysts and investors have expressed concern that Musk is stretched too thin — not only by the demands of Tesla, which has opened multiple new factories in recent weeks, but also with other responsibilities as CEO of rocket builder SpaceX and several smaller companies. If he succeeds in his bid to buy Twitter, Musk will have a historic, and largely unprecedented, catalogue of tech companies under his helm even after questioning last year how long he could keep up with overflowing demands.

Musk and Tesla did not respond to requests for comment. Musk praised Tesla’s performance despite the challenges in a tweet this month.

“This was an *exceptionally* difficult quarter due to supply chain interruptions & China zero Covid policy,” he wrote earlier this month. “Outstanding work by Tesla team & key suppliers saved the day.”

Tesla said at the time that it delivered more than 300,000 vehicles in the quarter, the first of 2022, positioning its numbers as a strong result “despite ongoing supply chain challenges and factory shutdowns.”

Tesla reported a $3.3 billion profit for the first quarter. Analysts had expected it to report strong first quarter numbers, but those will largely be a footnote as the company faces questions over how the China closure will affect its year. Tesla has called the Shanghai factory its main export hub, making it a critical site for the carmaker that is largely credited with ushering in the era of electric vehicles.

Over the course of a decade, Tesla went from a niche automaker delivering tens of thousands of vehicles to more than 936,000 in 2021. Along the way, it has faced profitability concerns, regulatory fights and production challenges that posed massive hurdles for Musk.

Already Tesla buyers are waiting in some places for more than six months to get their new vehicles, analysts said. Those wait times could remain as the China closure could cut into Tesla’s production by as many as 50,000 vehicles in the next quarter.

Musk said during the earnings call supply chain challenges from the pandemic will persist through the rest of the year.

“A car ordered today will arrive in some cases a year from now,” he said. “We’re obviously not demand-limited. We are production-limited.”

Twitter adopts ‘poison pill’ intended to thwart Elon Musk’s takeover bid

Tesla’s China production halt began in late March.

Musk has historically been sensitive to government-mandated factory shutdowns, lashing out in 2020 in response to shelter-in-place orders that required the closure of Tesla’s main Fremont, Calif. plant. He called the measures “fascist” and urged the government “give people back their g–d— freedom.”

Elon Musk launches into expletive-laden rant, calling quarantine measures ‘fascist’

Gene Munster, managing partner with Loup Ventures, said Tesla’s China factory closure signaled potential further complications.

“The bigger factor is: Is China adopting a different posture toward working with U.S. companies over the long haul?” he asked. “The answer is: They are.”

Beyond the stalled production lines, there are other indicators that Tesla is feeling the strain of the coronavirus pandemic — in the form of supply chain woes. Tesla said in its earnings release that supply chain challenges have been “persistent,” citing chip shortages, raw materials prices and even the need for cost adjustments — which it tied to inflation.

The company recently announced it would not be including charging cables with its new cars, prompting an outcry from even Musk’s most fervent supporters. Eagle-eyed followers of the company noted that the $400 component was axed from new car purchases and could not be bought on Tesla’s website because it was sold out.

The cable enables owners to charge their vehicles using a simple wall outlet, although it is considered more of a stopgap because it charges slowly. Still, they can serve owners in a pinch when first taking ownership of the car, visiting relatives or in a location without charging infrastructure.

Still, the component, known as a “mobile connector,” is considered a lesser option than installing a wall connector, which the company recommends. That charger is typically wired to the home electrical system and a charging cable extends from the base, which is mounted to the wall.

A wall charger is not included and requires an electrician to safely install. Still, they are relatively common among Tesla owners because they enable faster charging. Tesla also has a vast network of more than 30,000 Superchargers where owners can charge their vehicles on the go.

Musk sought to explain the change to stop including the mobile connector, saying: “Usage statistics were super low, so seemed wasteful,” but owners were unsatisfied. Later in response to the backlash, he said the company would drop the price to $200 and make ordering more intuitive.

Munster called the omission a “stealth price raise.”

Elon Musk’s Twitter bid frustrates employees. That’s a risk for him.


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