Some parts of China have been suffering from record-breaking temperatures in recent weeks, prompting local governments to halt industrial electricity use, including battery factory electricity use.
When news reaches the West, it generates fear-mongering headlines like “China heatwave shuts down Tesla suppliers” that have likely unsettled investors (because Tesla is all we care about, right?). But is the EV giant really suffering from the scorching heat in China?
First, we need to look at which factories are affected. Lithium battery giant CATL is among the companies ordered to shut down production in landlocked Sichuan Province, according to a local media report. The hiatus, which will last August 15-20, is part of the province’s effort to ration electricity as it suffers from a devastating drought and heatwave.
While CATL, a major battery supplier to Tesla, may have trouble filling some orders for customers, there’s no indication that Tesla is the one paying the bills. For one thing, CATL has manufacturing facilities across China, from Guangdong, Jiangsu to Shanghai, so a temporary, regional pause — while six days may seem long in the auto industry — is unlikely to crash the well-oiled supply of the multibillion-dollar business chain .
Suppliers are also more likely to prioritize Tesla’s demand based on its reputation and sheer volume. According to an automotive industry association, the American company was the third-best electric car manufacturer in China in the first half of 2021.
“In China, like Apple, Tesla enjoys a privilege with all manufacturers clamoring to be its suppliers. Even when production is constrained, it’s very likely that suppliers will prioritize orders from Tesla while others are put on hold,” a Tesla parts supplier told TechCrunch.
The supply chains for Tesla and its local EV competitors like Xpeng and Nio are centered on manufacturing hubs around the Pearl River Delta, which includes megacities like Guangzhou and Shenzhen, and the Yangtze River Delta, home to Tesla’s Gigafactory in Shanghai and numerous dozens of chipmakers around Suzhou, an employee of a Chinese EV startup pointed out to us.
Shanghai has been a victim of China’s recent heatwave, although there is still no sign of the weather halting production at the Gigafactory.
Shanghai had tough times earlier in the spring, when a two-month outbreak of COVID-19 forced the Gigafactory to shut down production twice.
It is precisely because of these sporadic COVID-related shutdowns in the last two years that “suppliers have become much more flexible,” said the Tesla supplier. “Many major manufacturers are stockpiling to provide a buffer to cushion COVID shocks.”
Finally, it’s worth noting that China is gaining momentum to recover its sluggish economy at all costs. And it’s likely that sectors that have been identified as top priorities by state planners, like the electric vehicle sector, will receive more support when resources are limited.
As the heatwave tests the country’s ability to keep its production running, Vice Premier Hang Zheng stressed “the importance of energy and electricity supplies for social and economic stability.”
“The country will also step up political support and take multi-pronged measures to help related companies overcome difficulties,” Han added.