Tesla announced it is shutting down production at its factory in Fremont, California, according to a recent press release. The shutdown, which went into effect at the end of business on March 23, came after Tesla and local authorities disagreed about how it could operate under the current “shelter in place” order.
- The company said it had $6.3 billion in cash at the end of 2019 so it will be able to handle the current economic uncertainty.
- This was before an additional $2.3 billion was raised, further strengthening its cash position.
- It also has approximately $3 billion in available credit lines.
The Tesla factory in Fremont, California, was still building cars last week. (Photo: Getty Images)
Complying with “shelter in place”
The factory in Fremont is located in Alameda County, which was among the first counties in the state to initiate a “shelter in place” order. The order limits activity and allows only essential business operations. That original six-county order now extends to the entire state of California.
Early last week the factory appeared to be operating as usual, which drew the ire of local authorities, including the Alameda County Sheriff. The dispute centered around what exactly constitutes an essential business. Tesla saw itself falling into that category while the sheriff disagreed.
On Wednesday night, Tesla decided to at least reduce the number of employees in its factory from 10,000 to 2,500. Although a significant cut, there were still concerns over whether Tesla was in compliance by maintaining only minimum basic operations rather than producing vehicles.
While vehicle production is shutting down, the Supercharger network is running as usual. (Photo: Getty Images)
A temporary production suspension
On Thursday, the company announced that, although it is following all guidelines regarding operating its Fremont factory, it was temporarily suspending production. It indicated basic operations would continue in support of vehicle and energy service operations and the charging infrastructure.
It further announced that its New York factory would be suspending production of all but parts and supplies needed for service, infrastructure and critical supply chains. Other facilities, including the Supercharging network and the Gigafactory in Sparks, Nevada, were set to continue operating.
How much this will impact Tesla’s ability to meet production goals is unclear, but some analysts are concerned, according to MarketWatch. The expectation is that the company has the financial reserves to survive the shutdown, but that it could cause financial stress in the coming months. There are also worries about the impact of the coronavirus on EV sales as a whole, given that the strongest markets for these vehicles, like California, are some of the hardest hit so far.
While Tesla won’t be producing cars at its Fremont factory, the government is encouraging it and other automakers to build ventilators to help treat coronavirus patients, according to USA Today. Tesla CEO Elon Musk also tweeted that the company was working on ventilators, although he doesn’t think they’ll be needed.
Retooling a factory from making cars to making ventilators isn’t something that happens overnight. Even if automakers, including Tesla, manage to make this switch, there is no indication as to how quickly Tesla can make this kind of transition.
WHY THIS MATTERS
As authorities work to slow the spread of the coronavirus, it’s not entirely clear exactly which businesses can continue operating and with what restrictions. While businesses want to protect employees, they also want to keep doing business if they believe it’s in their best interest.
Tesla believed it was within the “shelter in place” guidelines and decided only to suspend production when it was deemed unsafe for its employees. It may end up being a matter of perception, of whether the public and a company’s employees believe they’re operating responsibly, that secures full compliance.