Another One Bites the Dust: Tesla Reduces Its Nevada Gigafactory Activities

As a response to the COVID-19 outbreak amplifying in the U.S, Tesla Inc TSLA decided to reduce the number of workers in its Gigafactory in Nevada by 75%. This is after its CEO tweeted that he considers the pandemic to be ‘dumb' on March 6. Tesla's partner in this Gigafactory, Panasonic Corporation PCRFY, already closed its operations for all its factory employees. This was not an isolated decision since this massive plant operates in the privately-owned industrial park, Tahoe Reno Industrial Center (or TRIC), which occupies 107,00 acres. In addition to Tesla, TRIC is home to other companies such as Alphabet Inc GOOG, Walmart Inc WMT distribution center, Switch Inc SWCH and PetSmart.

All the mentioned companies agreed on serious measures, like work from home, creating more distance between workstations, central access and checking employee's temperatures.

Tesla's Gigafactories

Tesla's big plant in Reno, Nevada, is also known as the Gigafactory 1. The factory produces electric motors and battery packs for Model 3, as well as Powerwalls and Powerpacks, which are Tesla's main energy storage products, made in partnership with Panasonic as the main supplier. This factory is not only important for Tesla's electric car business, but also for other Tesla's business segments like solar and other sustainable energy.

Next to Nevada, Tesla has a Gigafactory in Fremont, California, which is responsible for the production of the Model X, Model S, Model Y, as well as Model 3. The California factory also operates with reduced capacity.

Gigafactory 3 is located in Shanghai, China, and it currently produces 3,000 electric cars per week, to partially compensate for the reduced capacities of the U.S. plants. The Chinese Gigafactory was also shut down around Chinese New Year, for the holidays, but also in part due to the coronavirus crisis. Before the shutdown, the Chinese factory was producing around 2,000 units.

Gigafactory 4 will be produced in the home of German auto giant Volkswagen AG/ADR VWAGY, close to Berlin.

Results Estimates

As traditional automakers like General Motors Company GM, Ford Motor Company F and Fiat Chrysler Automobiles NV FCAU decided to suspend their production in the U.S., Canada, and Mexico, so did Tesla. Before the decision to reduce the factory capacities to essential only, the Wall Street analysts estimated that Tesla might deliver around 106,000 vehicles in its first fiscal quarter. However, the factory suspension decreased these estimates by 22%, to 82,000 units, as well the stock target price to $425 (from $710). Tesla's supply chain might also be the reason for this drop. A lot of components are supposed to come from a single manufacturer, so disruptions of the supply chain could impact the company's ability to complete and deliver its products. On the other hand, Tesla had a strong cash position in its balance sheet, $6.3 billion at the end of 2019, before its recent capital increase of $2.3 billion. This high liquidity level should help the electric car pioneer sail through this uncertain period.

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