By Tim Higgins
Facing pressure to shutter Tesla Inc.'s California factory from
local authorities worried about the spread of coronavirus, Chief
Executive Elon Musk changed direction, announcing plans to suspend
production at its lone U.S. auto-making plant.
The move threatens to disrupt the Silicon Valley auto maker just
as it was stepping up production of its latest vehicle, the Model Y
SUV, which is part of Mr. Musk's plan to boost deliveries globally
by more than 36% this year.
The health crisis from the spread of Covid-19 -- the illness
caused by the coronavirus -- in the U.S., especially in California,
led counties in the San Francisco area on Monday to order
nonessential businesses to close to allow people to stay home to
combat the spread of the potentially deadly disease.
Tesla's statement Thursday laid out a plan for work to be
temporarily suspended at the Fremont factory. Production will cease
at the end of March 23 to give the company time to "allow an
orderly shutdown," the company said, while it would conduct "basic
operations" as required by authorities.
The auto maker will also stop production at its solar factory in
New York while keeping its Nevada battery factory working along
with its nationwide service and charging network.
That Tesla kept building cars Tuesday and Wednesday and showed
no signs of stopping put it at odds with the rest of Silicon
Valley. Even competitors General Motors Co., Ford Motor Co. and
Fiat Chrysler Automobiles NV have all disclosed their own closure
plans.
Even if Mr. Musk wanted to continue to make cars, analysts
doubted he would be able to much longer as parts suppliers are
likely to be affected by closures across the U.S. and Europe and
previous ones in China. It is also likely that sales will fall
dramatically in coming months. In China, which was first hit by
Covid-19, new vehicle deliveries plunged almost 80% in February
from a year ago.
Tesla also tried to reassure investors it could financially
absorb the impact from the production pause, saying it had $6.3
billion in cash on hand at the end of December before raising an
additional $2.3 billion in new shares a few weeks ago. Tesla also
has access to about $3 billion in working capital plus financing
available for its Shanghai factory, the company said.
"We have followed and are continuing to follow all legal
directions and safety guidelines with respect to the operations of
our facilities, and have honored the Federal Government's direction
to continue operating," the company said in a statement. "Despite
taking all known health precautions, continued operations in
certain locations has caused challenges for our employees, their
families and our suppliers."
Tesla shares fell more than 7% in after-hours trading following
the announcement. The stock had closed up 18%, rebounding from one
of its worst declines the day prior over shutdown concerns and a
broader market rout.
The decision ends several days of confusion over the status of
Tesla's Fremont factory.
Initially, Alameda County, where the factory is located, said
the plant wouldn't need to close. Then, on Tuesday, the county
sheriff's office said Tesla wasn't an essential business during the
health crisis and would need to limit work to "minimum basic
operations." The office said it needed to stop production.
Despite the sheriff's comments Tuesday, Tesla didn't halt work
at Fremont. Employees were instructed to continue working, though
those who felt uncomfortable were told they could take personal
time off to stay away.
Fremont Police Chief Kimberly Petersen earlier Thursday said she
would meet with Tesla officials to discuss cooperation with a local
government order directing nonessential businesses to shut down to
combat the coronavirus pandemic. The police disclosed the meeting
through a message on Twitter.
"The meeting went well and the city did not have to force a shut
down," Geneva Bosques, a spokeswoman for the police, said in an
email. "Tesla came to the table fully prepared and explained how
they would begin to decommission, in an effort to shut down their
assembly line and factory operations. They will be allowed to
maintain essential minimal business as outlined in the county
order."
Morgan Stanley estimates Tesla has enough cash to weather
revenue falling 90% for several months. In such a case, the bank
estimates, Tesla would burn about $800 million in cash a month.
Mr. Musk has publicly questioned reactions to the coronavirus
pandemic, calling the risk of panic generated by the crisis worse
than the health risks of the disease.
The auto maker hasn't commented publicly about its efforts to
keep workers safe. Earlier this year, Tesla closed its factory in
Shanghai as part of the effort there to stop the spread of the
virus.
On Twitter, Mr. Musk has responded to some of the criticism of
his comments about the crisis. He said he would begin making
ventilators if there is a shortage during the global pandemic.
He made the statement on Twitter late Wednesday in California,
noting Tesla vehicles are built with sophisticated air-filter
systems and that his other company, SpaceX, features such devices
in the life-support systems on some of its spacecraft. Ventilators
are seen as a crucial medical device to help treat the symptoms of
Covid-19 by helping deliver oxygen to failing lungs.
"Ventilators are not difficult, but cannot be produced
instantly," he wrote in response to one Twitter user. "Which
hospitals have these shortages you speak of right now?"
Early Thursday, New York City Mayor Bill de Blasio responded on
Twitter, saying the city would reach out directly because it needed
his help. "New York City is buying!" he wrote. "Our country is
facing a drastic shortage and we need ventilators ASAP -- we need
thousands in this city over the next few weeks."
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
March 19, 2020 18:49 ET (22:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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