Tesla Reportedly Plans For 'Closed-Loop Production System' As Giga Shanghai Set To Restart

Tesla, Inc. (NASDAQ: TSLA) may finally be preparing to restart operations at its Giga Shanghai, with multiple reports pointing to some degree of reopening by the unfolding week.

What Happened: The latest rumor doing the rounds is that Tesla is eying something called a "closed-loop production" system, beginning on Sunday. Bloomberg reported that the company has asked its workers to enter the closed-loop output system in order to restart operations in phases.

Giga Shanghai was closed for around three weeks, the longest period since it was set up in late 2019.

The closed-loop production system will require employees to live on-site, and these employees will be regularly tested for COVID, the report said, citing unnamed sources.

To circumvent the restrictions laid down by local districts and residential compounds, the company will reportedly issue a special certificate to those employees it has called. These workers will then be transported through shuttle buses to the plant, the report added.

Since the company plans to ramp production gradually, it will take a long time before production returns to pre-shutdown levels. This plan, however, is subject to change based on the Chinese government's COVID prevention policy.

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A Reuters report had suggested earlier Tesla will resume production gradually, beginning on Monday, but did not provide any details on the modus operandi.

Why It's Important: Given the plant was shutdown for three weeks and that its production capacity is 2,100 cars per day, the company may have lost production of about 44,100 cars, Bloomberg estimates. This represents about 14.5% of the company's global output, the publication added.

XPeng, Inc.'s (NYSE: XPEV) He Xiaopeng recently called on authorities to take concerted action to help the return of normalcy, a WeChat post by the CEO revealed. He also raised the specter of a prolonged shutdown in May if the situation does not improve.

China's COVID-19 lockdown could not have come at a worse time for the EV industry, which was already reeling under the impact of input cost inflation and component shortages triggered by the Ukraine-Russia war.

Tesla closed Friday's session down 3.66% at $985.

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Photo: Courtesy of tesla.com