Written by Brenda Nakalema

Drought: Tesla’s Latest Supply Chain Problem

Just when the auto industry thought it was finally out of the supply chain woods, another problem manifested seemingly out …

Just when the auto industry thought it was finally out of the supply chain woods, another problem manifested seemingly out of nowhere. Drought threatens to disrupt the parts supply in China.

Tesla (ticker: TSLA) and SAIC Motor (ticker: 600104. China) have requested the Shanghai government for help in dealing with the drought in the Sichuan province.

Sichuan’s capital city, Chengdu, is about 1,200 miles from Shanghai. Still, the car titans are asking Shanghai officials to intervene on their behalf and persuade Sichuan officials to prioritize power to automotive suppliers in the region. The drought has negatively impacted hydroelectric power generation in the region, forcing some manufacturers to shut down plants.

The problem has impacted one and all, with one of the suppliers with the largest capacity in the region- the largest EV battery maker in the world, Contemporary Amperex Technology Co Ltd (ticker: 300750. China)- idling some of its production in the Sichuan region.

Tesla investors don’t need much convincing to see clearly how battery supply and Chinese production can impact the company’s stock. The company generated 26% of its 2021 sales in China. On top of this, Tesla’s Shanghai plant is the company’s most productive assembly facility. From the looks of things, the drought could also impact General Motors (ticker: GM).

GM and SAIC operate a joint venture that produces many small electric vehicles in China.

The impact of the reduced supply of parts will be felt across the entire industry and represent another headwind the industry has had to brace itself for even after dealing with Covid-19 and the semiconductor shortage. Drought is only the most recent problem the industry has faced, even after the March 2021 fire outbreak at a chip plant in Japan which further worsened the semiconductor shortage.

Tesla stock gained 0.7% in premarket trading on Thursday. GM stock climbed 0.1%. S&P 500 and Dow Jones Industrial Average futures both climbed 0.1%. SAIC and CATL shares dropped 1.2% and 0.4%, respectively, in overseas trading.