The main question was how quickly Tesla's Shanghai facility and other auto plants could reopen to satisfy growing demand after emergency measures to manage China's largest COVID-19 outbreak were implemented during the last two months. The world's largest boom market for electric cars has gone bust, with the Shanghai lockdown now in its fourth week and similar curbs enforced in hundreds of smaller towns.
Even as Beijing works out steps to support COVID-hit businesses and revive demand, other companies ranging from luxury goods makers to fast-food eateries have supplied a first read on the lost revenues and shattered confidence of recent weeks. COVID regulations have had a substantial impact on various industries. The question now is how and when Chinese customers will resume purchasing everything from Teslas to tacos.
EV sales flourishing before lockdown
The current turbulence in China's once-hot EV sector is a vivid example of Beijing's hardline application of COVID regulations across the world's second-largest economy, which hit supply first and subsequently demand.
Electric car sales were growing until Shanghai was shut down in early April to contain a COVID-19 outbreak. Tesla's sales in China increased by 56% in the first quarter, while sales of BYD's electric vehicles more than quintupled. After then, there were lockdowns.
Due to delivery constraints, Shanghai's showrooms, stores, and malls were closed, and its 25 million citizens were unable to shop online for anything other than food and basic needs.
Five Chinese cities, accounting for 40% of the country's GDP, were under complete or partial lockdowns, putting the economy at risk of recession. Retail passenger car deliveries in China were 39 percent lower in the first three weeks of April compared to the same period last year, according to the China Passenger Car Association.
COVID controls reduced shipments, vehicle dealers resisted advertising new models, and sales in China's richest markets of Shanghai and Guangdong fell, according to the association.
Sales of a premium German automobile brand in Jiangsu province, which borders Shanghai, fell by one-third to half in April, according to one dealer, citing lockdowns and transportation bottlenecks as reasons. There is a lot of worry about the impact on consumer spending power.
From Beijing to Shenzhen, city governments are attempting to stimulate demand by handing out millions of yuan in shopping coupons to encourage locals to spend. Guangdong, a manufacturing behemoth with a GDP larger than South Korea's, announced its own incentives on Friday in an attempt to resurrect EV and plug-in hybrid sales.
Subsidies of up to 8,000 yuan ($1,720) are available for a select group of "new energy vehicles" in China, including Volkswagen and BYD. Tesla, China's second-largest EV seller, was left out of the subsidy program.
Chongqing, another major auto manufacturing region, announced in March that it would give customers up to 2,000 yuan ($430) in cash if they traded in their old cars for new ones, and that it would set aside another $US3 million ($4.2 million) for other sales-boosting efforts.
Despite such restrictions, researchers believe COVID control measures have caused both online and offline consumption to decline.
COVID does it again
Due to the COVID-19 epidemic, the Gigafactory Shanghai was temporarily shut down by the government on January 29, 2020 for around two weeks. Production, as well as that of suppliers and other businesses across the country, began on February 10th. Several safeguards were taken to prevent the virus from spreading, so Tesla planned to introduce a second shift of production by the beginning of Q2 2020, bringing the line capacity to around 3,500 vehicles per week.
It reached 8,000 automobiles per week by the end of the year, with some of them being right-hand drive for export to Australia and New Zealand. Total production reached 56,965 vehicles in November 2021, with capacity approaching 700,000 vehicles per year, making it the largest Tesla factory.