Musk Cites Supply Chain Woes for Tesla’s Brief Production Halt

(Bloomberg) -- Tesla Inc. temporarily halted some production at its car-assembly plant in California because of problems with its supply chain, though work has begun to resume, Chief Executive Officer Elon Musk told employees in an email.

“We are experiencing some parts supply issues, so took the opportunity to bring Fremont production down for a few days to do equipment upgrades and maintenance,” Musk said Thursday in an all-staff message seen by Bloomberg. The factory was “back up and running as of yesterday” and will rapidly ramp up to full production of Model 3 and Model Y cars “over the next several days,” he said.

Backlogs at ports and severe snow storms affecting ground transport have caused some of the supply-chain issues, according to a person familiar with the matter. Representatives for the Palo Alto, California-based electric-car maker didn’t respond to messages seeking comment.

Bloomberg reported earlier Thursday that some production had been paused at the factory. Staff on a Model 3 production line in Fremont were told their line would be down from Feb. 22 until March 7, though some Model 3 employees were back in the factory Feb. 24, said another person familiar with the matter, who asked not to be identified because the information is private.

While production-line outages aren’t unusual for automakers, they cost the companies revenue. Tesla has said capacity issues at ports and semiconductor shortages are affecting its supply chain. Chief Finance Officer Zach Kirkhorn said on an earnings call last month the company is working to manage the disruptions, saying they “may have a temporary impact.”

“We are not overly concerned this supply chain/factory disruption changes the overall delivery trajectory for 1Q and 2021,” Dan Ives, a Wedbush Securities analyst with a neutral rating on Tesla’s stock, wrote in a research note published Thursday.

Musk’s email encouraged employees to recommend friends to come join Tesla as the company “soon” resumes a second model S and X shift due to “high demand.” The S/X production lines are “almost done retooling and will be aiming for max production next quarter,” he said.

Tesla shares dropped 8.1% to $682.22 Thursday, and were little changed in late trading. The stock has declined 3.3% so far this year.

The California plant is still the most important part of Tesla’s vehicle-production base, with capacity to make an estimated 600,000 vehicles a year.

The affected workers were told they would be paid for Feb. 22 and Feb. 23 and not paid for Feb. 28, March 1, 2 and 3. They were advised to take vacation time, if they had it.

Chief Executive Officer Elon Musk also has opened a plant near Shanghai and is constructing facilities outside Berlin and in Texas.

Tesla has cut the price of its various models 14 times in markets including China, Japan and France this year, according to GLJ Research LLC founder Gordon Johnson, who has a sell rating on the stock.

“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,” Johnson wrote in a note earlier this week.

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