Shanghai’s Messy Covid Lockdown has Paralyzed Tesla in China

Tesla's Shanghai Gigafactory has been on pause for a week, missing out on at least 16,000 electric vehicles.

An aerial view of Tesla Shanghai Gigafactory on March 29, 2021 in Shanghai, China. Xiaolu Chu/Getty Images

Tesla (TSLA)’s Shanghai Gigafactory in China, its most productive plant in the world, has halted production for a week and sees no sign of reopening as an unprecedented Covid-19 lockdown in the city drags on.

Tesla paused operations on March 28 as a result of Shanghai entering a two-stage lockdown, starting with the city’s eastern half, where the Tesla factory is located. The lockdown was supposed to last only four days. However, as Covid cases continued to surge, restrictions in the eastern half of Shanghai were extended, and the western half of the city also entered lockdown starting April 1.

Tesla’s original plan to resume production over the weekend was scrapped. A new plan to reopen April 4 was also cancelled, Reuters reported.

The Shanghai Gigafactory is at the heart of Tesla’s global supply chain, manufacturing more than 6,000 Model 3 and 10,000 Model Y vehicles every week for the automaker’s Chinese and European markets, said one of Reuters’ sources. A weeklong shutdown means the factory has missed out on at least 16,000 electric vehicles so far. Meanwhile, the wait list for Tesla vehicles keeps piling up. Currently, the wait time for a Tesla Model Y is eight months for European buyers and three months for Chinese customers.

Part of the European market are expected to soon be serviced by Tesla’s new factory in Berlin, Germany, which began production on March 22.

“This was an exceptionally difficult quarter due to supply chain interruptions and China zero-COVID policy,” Tesla CEO Elon Musk tweeted April 2.

Can Tesla survive China this time?

Tesla has weathered many political storms in China, from Trump's trade war to Beijing's national security crackdown. But this time its fate is uncertain.

Previous Covid lockdowns in major Chinese cities were mostly brief, and foreign businesses were usually given some wiggle room. When Shenzhen, a tech and manufacturing hub, was placed under a seven-day lockdown in March, Apple supplier Foxconn was able to resume partial operations the next day. The lockdown was lifted on schedule.

It's a different story in Shanghai. The city's local government initially resisted a full-on lockdown, fearing its heavy economic costs, after the onset of the latest wave of Covid infections driven by the Omicron BA.2 variant. In mid-March, daily cases skyrocketed from a few hundred to more than 5,000 in a matter of days, posing threats to neighboring regions and putting China's zero-Covid goal in jeopardy.

In response, the central government in Beijing took over and ordered a strict citywide lockdown with no exception for foreign businesses. Local residents have complained about the closure of hospitals and public transportation and critics question the premise of such extreme measure given Shanghai has reported zero severe Covid case or death. Yet there is no sign of the government lifting restrictions anytime soon.

On April 3, Shanghai reported more than 9,000 new cases (the vast majority asymptomatic), nearly double the number before the citywide lockdown and about 70 percent of China's total reported cases on April 3.

In China's northeastern Jilin province, also hit hard by the Omicron variant, daily cases have stayed above 1,000 for nearly a month despite a similar lockdown.

Shanghai’s Messy Covid Lockdown has Paralyzed Tesla in China