Brokerage data revealed that Tesla (TSLA.O) increased its electric vehicles inventory in Shanghai at its quickest rate ever in October, at a time when investors and manufacturers are preparing for a decline in the world’s largest auto market.
According to data from China Merchants Bank International, Tesla manufactured 87,706 Model 3s plus Model Ys in Shanghai in October but only delivered 71,704 of them, leaving 16,002 Chinese-made vehicles in inventory (CMBI).
CMBI data revealed that was the largest disparity between output and sales since Tesla inaugurated its Shanghai Gigfactory in the latter parts of 2019.
A request for clarification from Tesla was not immediately complied with.
Although Tesla has low inventory levels compared to other manufacturers, increasing inventory has historically been a sign of a downturn in the market and has necessitated markdowns in previous downturns of the sort Tesla has not yet seen.
Elon Musk, the CEO of Tesla, claimed last month that Tesla’s second-largest market, China, was experiencing a “recession of sorts.” China is expected to grow by just 3.2% this year, lower from 8.1% last year, according to the International Monetary Fund, and automakers are preparing for Beijing to reduce subsidies for EVs and hybrids.
To increase sales, Tesla last month reduced the pricing of its Model 3 & Model Y vehicles in China. For customers who take deliveries this month and get insurance from one of Tesla’s partners, the business announced an extra incentive on Monday.
The forecast for China’s auto market has been unfavourable, according to Hong Kong-based CMBI, which stated in a note last month that it anticipates a downturn in retail demand in 2023 and cited a rising inventory of unsold vehicles as a source of concern.
Tesla distributes through its own stores rather than through dealers, therefore it is left to retain and fund any inventory that hasn’t yet been delivered to customers. This is different from typical automakers.
Tesla typically produces more cars at the start of a quarter and concentrates on delivery in the last weeks. Musk has claimed the company is attempting to break this pattern by better timing deliveries.
Some analysts said Tesla may need to keep more cars in inventory as a safety net to balance deliveries over the span of a quarter. After the third quarter, the corporation recorded $2 billion in inventory, including unsold vehicles. From $1.2 billion a season earlier, that increased by 60%.
Additionally, Tesla has been reorganising its retail plan for China. Last Monday, Tesla shuttered its first China showroom, a posh spot inside a mall in Beijing. Tesla has been thinking about abandoning its showrooms in glitzy malls and creating bigger, more affordable ones in outlying areas that can also handle repairs.
Statistics revealed that Tesla performed an upgrade during the summer that increased its output to 22,000 units each week when the city of Shanghai was under a COVID-19 lockdown.
In an extension of the same topic—manufacturing is not easy for everyone.
After implementing the CHIPS Act, the United States actively backed local research, development, and production while encouraging international tech companies to manufacture in the nation.
Since Taiwan is sandwiched between its largest export market, China, and its largest global backer and arms supplier as well as its power-sharing economy, the United States, it faces a more difficult situation, especially as Beijing increases military pressure on Taipei to accept Chinese sovereignty claims. While the chip industry is preparing for declining demand as hot inflation pinches spending, Taiwan faces a harder situation.