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Tesla Is Resuming Normal Operations at Its U.S. Factories

By Daniel Sparks – May 22, 2020 at 6:31AM

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Despite bringing its factories in California and Nevada back online, investors should expect a weak second quarter.

Like many other companies, electric-car maker Tesla (TSLA -4.59%) went through a period of uncertainty earlier this year after the coronavirus outbreak forced the company to shut down its factories. Though the automaker's China factory quickly came back online, it's only now that things are finally getting back to normal in the U.S. Tesla told employees this week that it's returning to normal operations at its car factory in California and its battery factory in Nevada.

While it will take Tesla time to ramp production back up to pre-shutdown levels, this progress puts the company one step closer to fully resuming its rapid growth.

Vehicle production at Tesla's factory in California

Image source: The Motley Fool.

Employees are returning to work

"Bay Area guidelines permit manufacturers to resume normal operations, and ease restrictions for retail, warehousing and other industries assuming all required safety precautions can be followed," wrote Tesla's human resources department in a memo emailed to employees and obtained by CNBC this week.

In the email, the automaker said that production workers should come back to work at both its California and Nevada factories. HR management noted it would reinstate its usual attendance policy on Friday, May 22, albeit with a new provision allowing employees to take unpaid leave through May 31 if they don't want to work because of concerns about exposing an at-risk person at their home.

Tesla emphasized that the memo only applied to production-related jobs at its factories in California and Nevada. "Those who can continue to work from home, should do so," the memo read.

Expect a weak second quarter

Despite Tesla's California and Nevada factories coming online, investors should expect sales to take a significant hit during Q2. Not only was its main factory in California shut down for about half of the quarter, but it will undoubtedly take some time for production levels to return to where they were before manufacturing paused. In addition, Tesla will need its suppliers to resume regular operations as well.

Tesla's website is currently showing a slow timeframe for getting new vehicles to customers who order them today. For custom Model 3, S, and X orders, Tesla estimates deliveries will take place in four to six weeks. Custom orders of its new Model Y will deliver in about eight to 12 weeks, the company predicts.

Of course, Tesla's factory in Shanghai was producing vehicles during the quarter. But the factory only had an installed annual production capacity of 200,000 vehicles per year, compared to an annual capacity of about 500,000 at the company's factory in Fremont, California. Further, Tesla's Shanghai factory only builds vehicles for the China market.

Once production gets back on track, Tesla can reevaluate whether it still has a shot at growing deliveries to 500,000 units this year, up from about 368,000 deliveries last year. This was the company's original outlook for the year, but management refrained from reiterating this forecast in its first-quarter update, which took place during the manufacturing pause.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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