Tesla shuts down Shanghai production line pro tem over coronavirus concerns
Tesla has closed its Shanghai manufacturing plant as a result of a more extensive request by the Chinese officials in an effort to curb the quickly expanding reach of the coronavirus in the region. The move will undoubtedly set back timelines for the production of the Model 3 and eventually put a slight damper on the company’s profit margin in the first quarter, as noted by Tesla’s finance executive Zach Kirkhorn during an earnings call on Wednesday.
Earlier that day, but before Kirkhorn made his comments, Tesla disclosed a net income of US$105 million, or US$0.56 per diluted share, contrasted with US$140 million and US$0.78, around the same time prior period last year. Tesla made US$386 million, or US$2.14 a share in the previous quarter when adjusted for one-time items. Tesla reported revenue of US$7.38 billion in the same quarter, which is just 1% higher than the US$7.2 billion figure shown in same period in 2018.
Just one year after the Tesla opened the doors of its first non-US factory, the first Model 3 EV were being delivered to customers in January of 2020 from the Shanghai plant, merely days after the initial reports of the outbreak. This was a landmark occasion for the US automaker and an integral step for the firm to expand its footprint in the world’s largest automotive market, as well as to mitigate some of the economic damage caused by the US-China tariffs.
Model 3 manufacturing will be set back by a about 10 days, Kirkhorn said. The new form of the family of viruses called the coronavirus, for the time being dubbed Novel coronavirus, is believed to have originated in Wuhan in the last days of 2019. From that point forward, a large number of individuals have been confirmed to contract the infection, resulting in regulatory measures from the nation’s officials such as closing down transportation as well as manufacturing plants in many parts of the nation, including Foxconn. Car manufacturers Ford and Toyota have also confirmed they will extend the temporarily close of their assembly facilities in China for an additional week, according to the New York Times.
“We are in the early stages of understanding if, and to what extent, we may be temporarily impacted by the coronavirus,” Kirkhorn said. “At this point we’re expecting a one, to one and a half week-delay in the ramp of the Shanghai build Model 3 due to a government required factory shutdown. This may slightly impact profitability for the quarter, but is limited as the profit contribution from Model 3 Shanghai remains in the early stages.”
Tesla is also closely monitoring if the coronavirus will cause interruptions in the supply chain for cars built in Fremont. “So far we’re not aware of anything material, but it’s important to caveat, this is an unfolding story,” Kirkhorn added.
Apple CEO Tim Cook announced to investors that its Chinese suppliers will remain out of operation until February 10th. At the same time, Starbucks reported that the company would shutter over two thousand coffee shops in China.