Tesla stops most car production in Germany

According to Kallanish News, the US electric vehicle manufacturer Tesla will reportedly halt most car production at its factory in Germany for two weeks amid delays in component deliveries due to the attacks in the Red Sea.

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Attacks by Houthi militants on the key shipping route to the Suez Canal have disrupted maritime commerce, forcing companies to take the much longer, alternative route. Tesla is believed to be the first company to reveal an impact on supply chains after the group stepped up attacks on ships allegedly “bound for Israel,” in support of Hamas.

The online magazine Reuters said late on Thursday, the automaker would suspend most production at its Giga Berlin from 29 January to 11 February. It did not, however, specify what components were preventing the manufacturer from carrying out its production shifts.

Longer transportation times creating a gap in supply chains

“The armed conflicts in the Red Sea and the associated shifts in transport routes between Europe and Asia via the Cape of Good Hope are also having an impact on production in Grünheide,” Tesla is quoted as saying. “The considerably longer transportation times are creating a gap in supply chains.”

The Suez Canal route, which is estimated to account for about 12% of global maritime traffic, is the fastest maritime route from Asia to Europe. The alternative – the East-West route via the southern tip of Africa – adds over 10 days to the trip, potentially running up to two weeks, according to ING Think. Due to the Red Sea disruptions, shipping giants such as Maersk have started taking the Cape of Good Hope route. Already, the number of vessels crossing the Bab el Mandeb Strait – the entrance to the Red Sea – in the first week of January has nearly halved compared to January 2022, says ING economist Rico Luman.

Other automakers could also be hit by the conflict

Market players believe other automakers could also be hit by the conflict, since most EV and battery components used in Europe currently come from China and other Asian countries.

Sam Fiorani, vice president at AutoForecast Solutions, wrote on LinkedIn: “Global conflicts have been influencing the automotive supply chain forever, and the growing reach of parts supply is just adding weak points. Now it’s Tesla’s turn to feel the pain, but it’s unlikely to be the last." Consultant battery electrochemist, Euan McTurk warns the longer travel would cause “supply chain delays, intermittent halts to production whilst awaiting parts, and reduced vehicle output.”

It could result in rising vehicle prices

“This could result in vehicle prices increasing again, both new and used,” McTurk told Kallanish. “Given that this disruption has happened with memories of logistical chaos of the Covid pandemic fresh in everyone’s minds, it’ll be interesting to see if big automotive OEMs move to accelerate the reshoring of component manufacturing and increase the circularity of their supply chains in Europe.”