Bloomberg reported that Tesla is looking to slash output at its Shanghai plant by up to 20% this week, sending its shares tumbling more than 4%. The move comes amid a slowdown in China’s car market and Tesla’s swollen inventory levels as China’s zero-Covid policy continues to weigh on demand.

Tesla to Make its First Voluntary Production Cut in China

Tesla is planning to cut production at its Shanghai plant by up to 20% amid weaker demand in the Chinese market, according to Bloomberg. Shares of Tesla tumbled over 4% in premarket trading Monday.

The output reduction, which could come into force later this week, comes after the electric vehicle (EV) maker assessed its short-term performance in the US market. A Bloomberg source said that the carmaker could further increase output in the US if needed.

This is the first time Tesla has deliberately decided to trim production at its Shanghai factory after being forced to reduce the output due to lockdown measures in China a few months earlier. Last week, Tesla’s stock tumbled after widespread protests emerged across China’s major cities against the zero-Covid policy.

Tesla’s decision to reduce production in Shanghai follows recent price cuts and insurance subsidies, which indicate that the world’s biggest carmaker is seeing slower demand in its Shanghai gigafactory. Earlier this year, Elon Musk’s automaker upgraded the plant’s capacity to around 1 million cars a year.

The company has slashed prices for its Model 3 and Model Y cars by up to 9% in China. Additionally, Tesla offered insurance incentives that have driven its sales of China-made cars by 40% in November compared to a month earlier and by 89.7% compared to the year-ago period.

Tesla Delivered More Than 100,000 Vehicles in China in November

While Tesla is cutting production in Shanghai, the carmaker reported a record 100,291 deliveries in China in November as lead times for its Model 3 and Model Y vehicles decreased significantly. This also suggests that the company’s demand can not keep up with its supply.

According to Tesla’s website, any Model 3 and Model Y ordered in China should be delivered to buyers within a month. This compares to wait times of up to 22 weeks earlier in 2022.

Tesla’s swollen inventory in Shanghai comes amid a weaker auto market in China, the largest one in the world. China’s stringent zero-Covid policy has weighed on its car market as well as its broader economy, though authorities have begun taking easing some restrictions following recent protests.

This article originally appeared on The Tokenist

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