Red Sea Attacks Halt Tesla Production at German Plant

Tesla will suspend most car production at its factory near Berlin from Jan. 29 to Feb. 11, the company said on Thursday, citing a lack of components due to shifts in transport routes because of attacks on vessels in the Red Sea.

The partial production stop is evidence that the crisis in the Red Sea, unleashed by Iranian-backed Houthi militants attacking vessels in solidarity with Palestinian Islamist group Hamas fighting Israel in Gaza, has hit Europe's largest economy.

The U.S. electric vehicle maker is the first company to disclose an interruption to output due to the disruption. Many companies including Geely, China's second-largest automaker by sales, and Swedish home furnishing company Ikea have warned of delays to deliveries.

"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 Gruenheide," Tesla said in a statement.

"The considerably longer transportation times are creating a gap in supply chains."

Analysts expect that other automakers could suffer fallout from the Red Sea conflict.

"Relying on so many key components from Asia, and specifically China, has been a potential weak spot in any automaker’s supply chain. Tesla relies heavily on China for battery components, which need to be transported to Europe through the Red Sea, putting production constantly at risk," said Sam Fiorani, vice president at AutoForecast Solutions which tracks automotive supply chains and production.

"It can’t be believed that they’re alone, only the first to reflect the issue," he said.

The disruption adds pressure on Tesla at a time when it is also fighting a labour dispute with Swedish trade union IF Metall over signing a collective bargaining agreement, sparking sympathy strikes from a host of unions across the Nordic region.

Unionised workers at Hydro Extrusions, a subsidiary of Norwegian aluminium and energy company Hydro, stopped work on components for Tesla car products on Nov. 24. The workers are members of IF Metall.

Tesla has not responded to requests for comment on whether the Hydro Extrusions strike was affecting output.

The company said in its statement on Thursday that production would resume in full on Feb. 12. It did not respond to requests for further detail on which components were missing or how it would restore production by then.

The attacks by Iranian-backed Houthi militants have forced the world's top shipping companies to avoid the Suez Canal, the fastest maritime route from Asia to Europe which accounts for about 12% of global maritime traffic.

Shipping giants such as Maersk and Hapag-Lloyd have been sending their vessels on longer, more expensive journeys around South Africa's Cape of Good Hope.

Denmark's Maersk said on Friday it expects the rerouting to last for the foreseeable future.

The extra route adds about 10 days in a journey from Asia to Northern Europe and about $1 million in extra fuel.

Across the electric vehicle sector, carmakers and analysts in Europe have warned in recent months that sales were not growing as fast as hoped, with some companies cutting prices in an attempt to boost demand weighed down by economic uncertainty.

January 12, 2024