February 2, 2023

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Tesla Shanghai is restocking at its highest rate ever in October

©Reuters. FILE PHOTO: Tesla’s Chinese-made Model 3 vehicles are seen during a delivery event at its plant in Shanghai, China, January 7, 2020. REUTERS/Aly Song

SHANGHAI (Reuters) – Tesla (NASDAQ:) increased its inventory of electric vehicles in Shanghai at a rapid pace in October, broker data showed, at a time when automakers and investors are bracing for a downturn in the world’s largest auto market.

In October, Tesla produced 87,706 Model 3s and Model Ys in Shanghai but delivered 71,704 vehicles, leaving a gap of 16,002 Chinese-made cars in inventory, according to data from China Merchants Bank International (CMBI).

That was the biggest gap between production and sales since Tesla opened its Shanghai gigfactory in late 2019, CMBI data showed.

Tesla did not immediately respond to a request for comment.

Graphic: Tesla’s China Gap –

While Tesla’s inventories remain low relative to incumbent automakers, the inventory build-up has been an indicator of the industry’s downturn, forcing writedowns in previous recessions unlike any Tesla has experienced.

Tesla CEO Elon Musk said last month that China, Tesla’s second-biggest market, is in a “kind of recession.” The International Monetary Fund expects China to grow just 3.2% this year, compared to 8.1% last year, and automakers are gearing up Beijing plans to cut subsidies for electric and hybrid vehicles.

Tesla cut prices for its Model 3 and Model Y cars in China last month to boost sales. On Monday, the company offered an additional discount for buyers who take delivery this month and buy insurance with one of Tesla’s partners.

Hong Kong-based CMBI has expressed pessimism about the prospects for China’s auto market, saying in a note last month that it expects retail demand to slow in 2023, citing a growing inventory of unsold cars as a concern.

Unlike traditional automakers, Tesla sells through its own stores rather than through dealers, so it must hold and fund all inventory that hasn’t been shipped to buyers.

Tesla’s pattern has been to produce more vehicles at the beginning of a quarter and focus on deliveries in the final few weeks, a practice Musk said the company is working to change by better timing deliveries.

Some analysts have said that Tesla needs to keep more vehicles in inventory as a buffer to keep delivery running smoothly over the course of a quarter. The company reported $2 billion in inventory at the end of the third quarter, including unsold cars. That was a 60% increase from $1.2 billion in the prior quarter.

Tesla has also revamped its retail strategy for China. Last week, Tesla closed its first showroom in China, a high-end location in a Beijing mall. Tesla is considering closing showrooms in flashy malls and opening larger ones in less expensive suburban locations that can also offer repairs.

This reflects a shift in priorities for Tesla’s China team from ramping up production at the Shanghai Gigafactory to focusing on sales strategy, said a person with knowledge of the discussions.

Tesla managed to keep the Shanghai plant running through most of the city’s COVID-19 lockdown, completing an upgrade over the summer that expanded its capacity to 22,000 units a week, Reuters previously reported.