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Tesla denies report of planned production cuts in Shanghai (update)

Tesla (NASDAQ:TSLA) called reports from both Bloomberg and Reuters that Giga Shanghai will cut production “untrue” on Monday.

In premarket hours on Monday, both outlets reported that the EV manufacturer plans to lower production by as much as 20%. The decision was made after assessments on demand in the key market for Tesla (TSLA). The report stoked fears of waning demand in the region that has become increasingly competitive amid the emergence of powerful domestic competitors like BYD Company (OTCPK:BYDDY).

However, in a statement to Reuters, the Elon Musk-led company denied the claims in the reporting. Reuters nonetheless stood by the reporting, telling readers that “two sources with knowledge of the production plan” confirmed the details.

Shares of the Austin-based automaker fell over 7% at intraday lows in the wake of the reporting.

In a note to clients examining the debated issue, Piper Sandler analyst Alexander Potter noted that regardless of the reporting's truth or falsity, "China-related anxiety is clearly rising among TSLA shareholders." That said, he told clients that competition in China is not likely to be the driving force of any production cuts.

"If Tesla does eventually decide to cut production, we think macro headwinds and a new factory in Berlin will be to blame, NOT competition from Chinese peers," he wrote. "The problem is, with a shaky macro and ongoing COVID disruptions, it's possible that Tesla may become a victim of its own success: the company could feasibly run out of buyers in the $50k+ price range just as localized production begins ramping in Europe, thereby reducing demand for exports."

Under these circumstances, Potter sees a rationale for production cuts in Shanghai. Still, he foresees pricing cuts as a more logical and likely course of action for the automaker.

Read more on Chinese EV sales stats for November.