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Is Production Volume at Tesla’s Shanghai Factory Surging?

Late last month, there were reports that Tesla (NASDAQ:TSLA) was beginning to export vehicles from its factory in Shanghai to the European market. The news suggested that either demand was suffering in China and the automaker was subsequently forced to ship excess inventory, or that the Shanghai factory had managed to significantly increase production rates. As more insight into Tesla’s progress at its Shanghai factory surfaces, it appears the latter is correct.

Tesla’s production volume at its Shanghai factory skyrocketed in October, according to data from Chinese automotive agencies. If true, this puts Tesla one step closer to achieving its aggressive outlook for 500,000 total vehicle deliveries in 2020.

Vehicle production at a Tesla factory.

Tesla factory. Image source: The Motley Fool.

Rapid growth in China

Tesla’s monthly vehicle sales in China were about flat in October compared to September, according to data from the China Passenger Car Association and China Association of Automobile Manufacturers. Yet production volume of Tesla vehicles in the country soared. The electric-car maker reportedly produced nearly 23,000 vehicles in October — up from about 13,000 in the prior month. 

This sudden spike in vehicle production at Tesla’s factory in China would explain why Tesla started exporting vehicles produced in the country to Europe.

Setting new standards

Since Tesla broke ground on its Shanghai factory early last year, it has been setting new standards for the automaker. After taking less than a year to build the factory and begin producing vehicles, production volume has ramped up faster than Tesla had achieved at any facility previously.

Impressive progress at Shanghai has persisted throughout 2020, with the automotive company increasing annual Model 3 production capacity from 200,000 units in Q2 to 250,000 in Q3. In addition, management said in Tesla’s third-quarter update that the company added a third production shift at its Shanghai location. An increase in production rates combined with the addition of another factory worker shift likely explains the reported sharp increase in production volume in October.

The path to 500,000 vehicles

Tesla is aiming for 500,000 total vehicle deliveries globally this year, representing 36% year over year growth. While the automaker has made notable progress throughout the year, Tesla will need a huge jump in fourth-quarter deliveries to hit its full-year guidance.

First, second, and third quarter deliveries were about 88,000, 91,000, and 140,000, respectively. Now Tesla needs to deliver a record 181,000 vehicles in the fourth quarter of 2020 to hit its guidance. This represents 61% year-over-year growth and 30% sequential growth.

Even if these reports of surging production rates in Shanghai are true, the record deliveries Tesla needs in Q4 are not necessarily in the bag yet. But this might put the aggressive target within reach.

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