Tesla Inc. is reportedly cutting back on its workforce at its battery assembly lines at its Shanghai plant. According to anonymous sources, the electric carmaker has begun informing employees about the decision, with some being given the option to transfer to other workshops within the facility. The exact number of employees affected by the layoffs has not been disclosed, nor have the reasons behind the decision. Tesla's representatives in China have not provided any comments on the matter.
The Shanghai factory of Tesla, which accounts for more than half of the company's global output, employs around 20,000 workers. With a production capacity of approximately 1 million electric vehicles (EVs) per year, the facility has been a key contributor to Tesla's growth and success. Although Tesla procures batteries from LG Energy Solution Ltd. and Contemporary Amperex Technology Co. Ltd., the assembly of these batteries into modules and packs is primarily carried out at the company's battery workshop in Shanghai.
Reports suggest that Tesla is working on developing automation equipment that could potentially replace human labor at the battery production line. However, the implementation of such equipment is still in the design and construction phase. Despite the potential for increased automation, Tesla has been experiencing strong demand for its EVs, both in China and globally. In June, deliveries from the Shanghai factory witnessed a 20% year-on-year increase to reach approximately 93,680 vehicles. The company also achieved record-breaking global deliveries in the second quarter.
The decision to reduce the workforce comes at a time when Tesla's operating margin dipped to 11.4% in the first quarter, which is the lowest it has been in around two years. This decline is attributed to the price cuts Tesla implemented in January and March. CEO Elon Musk has repeatedly emphasized his willingness to accept lower profit margins on each vehicle sold. Nevertheless, Chinese authorities are trying to curb the price-cutting trend, recently initiating talks with Tesla and other major local automakers to ensure fair competition and prevent abnormal pricing.
Although there hasn't been another direct price cut, Tesla has announced a fresh round of incentives for buyers of its Model 3 and Model Y EVs in China. This includes a cash reward of 3,500 yuan ($480) for customers referred by existing Tesla owners. The objective is to stimulate demand and maintain Tesla's strong presence in the Chinese EV market amidst increasing competition.
Overall, while Tesla's decision to reduce its battery assembly workforce in Shanghai may be a strategic move to optimize operations or streamline costs, the company remains focused on meeting the growing demand for its popular electric cars in China and around the world.