Electric car maker Tesla (TSLA 4.96%) saw its year-over-year growth rate in vehicle deliveries slow in Q2. But it wasn't because demand was suffering. Orders were backed up so much that some customers had delivery times that were pushed into next year. The crux of the problem was supply. Tesla "saw a continuation of manufacturing challenges related to shutdowns, global supply chain disruptions, labor shortages and logistics and other complications, which limited our ability to consistently run our factories at full capacity," the company said in its second-quarter update.
But there's good news this week when it comes to Tesla's production. Delivery windows for new Model Y customer orders in China were just slashed, suggesting the company's production rate at its factory in Shanghai is picking up speed.
Lower demand or faster production?
Delivery times for new orders of Tesla's rear-wheel drive Model Y in China now have an estimated delivery window of between four and eight weeks, down from a previous estimate of between eight and 24 weeks.
While it's possible that part of the reason for a shorter estimated window for deliveries of new orders is due to softening demand, investors should note that the company's improving production capacity at the important plant is no secret.
"While the Shanghai factory was shut down fully and then partially for the majority of Q2, we ended the quarter with a record monthly production level," Tesla said in the company's second-quarter update. Further, the electric car maker noted that recent equipment upgrades were set to boost the factory's production rate even higher. And we later found out from Bloomberg that the factory upgrade would reportedly increase production capacity to a rate of more than 1 million vehicles per year -- a staggering rate considering that total deliveries, including cars from both the company's U.S. and China factory, were fewer than 1 million in 2021. Citing "people familiar with the matter," Bloomberg said the upgrade at Tesla's factory in Shanghai was expected to be complete by about Aug. 7.
Expect a strong second half of 2022
Tesla started off 2022 growing at an incredibly high year-over-year rate of 68% in Q1. But growth slowed in Q2, to a rate of 27%. A pause in production in Shanghai due to government restrictions related to the region's policies to mitigate the spread of COVID-19 severely impacted quarterly production in China toward the end of Q1 and in the beginning of Q2. But Tesla has been hoping production would pick up sharply in the second half of the year.
In June, Tesla achieved production records in both Fremont and Shanghai, according to CEO Elon Musk on the company's second-quarter earnings call. "And as a result, we have the potential for a record-breaking second half of the year," he said.
Getting more specific, Tesla said in its earnings call that it still expects full-year production to increase 50% year over year despite the challenges it faced in the first half of the year in China. But Tesla CFO Zachary Kirkhorn was sure to note that the target is more difficult now than it was before the company knew it would face major disruptions in China.
But the combination of a report from Bloomberg about Tesla upgrading its factory in China and news of lowered delivery timeframes for new Model Y orders in China suggest that the company's planned ramp-up in production at its Shanghai factory is going well.
