Tesla Halts Work at Shanghai Factory

Tesla (TSLA.O) is suspending production at its Shanghai factory for two days as China tightens COVID restrictions to combat its latest outbreak.

The Shanghai factory operates 24 hours a day, seven days a week. Suppliers and Tesla employees notified that production halted on Wednesday and Thursday. The Gigafactory 3 produces the Tesla Model 3 sedan and the Model Y crossover sport utility vehicle. It did not specify why the plant stopped operating.

Many cities in China, including Shanghai, have implemented strict movement controls; they’re trying to contain the country’s largest COVID-19 outbreak in two years. The measures have also resulted in factory closures in some country areas, putting strain on supply chains. The Shanghai factory manufactures cars for the Chinese market; moreover, it also serves as an important export hub to Germany and Japan. According to the China Passenger Car Association, it delivered 56,515 vehicles in February, including 33,315 for export.

The notice did not specify whether the measures would result in a loss of output or whether Tesla would be able to compensate for any lost output.

Many residents in Shanghai have been asked not to leave their homes or workplaces; the recommended time is for 48 hours to 14 days while authorities conduct COVID tests or contact tracing. In a separate notice issued on Wednesday and obtained by Reuters, Tesla requested that suppliers estimate the number of workers required to achieve total production; moreover, it will provide information on workers affected by COVID restrictions.

It also asked suppliers to prepare workers to live, sleep, and eat at the factories; similar to China’s “closed-loop management” system. Foxconn (2317. TW), an Apple supplier, will be able to resume some operations at its Shenzhen campus on Wednesday after reaching an agreement.

According to a person familiar with the situation, Tesla was notified last weekend by one of its suppliers that COVID measures had impacted its production.