What Tesla's production slowdown could mean for its stock

What Tesla's production slowdown could mean for its shares - ms homepage socialYou're here (Tesla shares - ticker TSLA) has grown to become the largest electric vehicle (EV) manufacturer in the world. It has always been a pioneering company, which has led this new sector with its innovation not only within each car, but also in the production process.

But 2022 presented a challenge. The auto industry is facing supply chain disruptions that have slowed production and a brutal stock market sell-off has plunged the valuations of tech companies. 

Tesla has just released production figures for the second quarter of 2022, revealing the largest sequential decline in the past two years. While this is a short-term hurdle, it shouldn't alter the company's long-term trajectory. 

Tesla management is going through tough times

Since the start of the pandemic, the auto industry has had to contend with shortages of key vehicle components, such as semiconductors, and closures in Europe and Asia have caused production to stop. Semiconductors are advanced computer chips that power digital functions inside new cars, but in Tesla's electric vehicles they do much more.

The infotainment system inside a Tesla is responsible for controlling many of the car's core functions, such as charging and comfort, as well as allowing the user to browse the internet and play games. It's a step up from the processing power required by a traditional combustion engine car, to the point where semiconductor giant Micron Technology has described electric vehicles as data centers on wheels.

Tesla has coped well with the chip shortage, generating quarterly production growth for most of the past two years. But it faced an additional challenge when its manufacturing facility in Shanghai, China closed for most of April as part of the COVID-19-related interim closures. The plant has an annual production capacity of 450.000 vehicles, equal to almost half of the company's total capacity (up to the entry into operation of the new plants in Texas and Berlin, Germany). on second quarter production. 

Tesla's slowdown could be temporary

Ultimately, Tesla produced 258.580 vehicles in the second quarter, down 15% from the first. But it was still 25% higher than the number of cars produced a year ago, in Q2 2021. 

In commentary that accompanied the Q2 numbers, Tesla informed investors that June was the month with the highest production in the company's history. This suggests two things: The Shanghai plant is almost back to full capacity, and supply chain problems (such as a shortage of chips) are starting to resolve.

But it's also attributable to the fact that Tesla's two new giant factories in the United States and Germany have started producing vehicles. Once they reach full production capacity, Tesla is expected to produce 2 million cars per year, which is nearly double what it could produce with existing factories. 

This is a sign that the production slump in the second quarter could be a simple obstacle on the way to much, much higher numbers in the near future. Given that Tesla stock is currently down 45% from all-time highs, this could be an opportunity for investors to build a position. For those investing small amounts of capital, it is good to keep an eye on the company's stock split that will occur over the course of the year.