Tesla, Inc. (NASDAQ: TSLA) slid by as much as 3.5% on Thursday morning after a report surfaced that the electric automaker and Panasonic are pausing the expansion of the Gigafactory 1, according to Nikkei Asian Review.
Gigafactory 1 is a massive USD 4.5 Billion facility near Reno, Nevada where Tesla and Panasonic jointly manufacture battery packs for Tesla’s vehicles and energy storage products. The facility also manufactures parts for the Model 3 sedan. Tesla also intends to manufacture the Model Y at the factory.
Tesla and Panasonic previously planned to increase the factory’s capacity by 50% by 2020, but have since reconsidered their plans, the Nikkei Asian Review said.
“We will of course continue to make new investments in Gigafactory 1, as needed,” Tesla said in a statement. “However, we think there is far more output to be gained from improving existing production equipment than was previously estimated.”
The report concerned investors because it could impact Tesla’s production and delivery rates. Recently, Tesla missed its quarterly delivery expectations, which was also concerning because Chief Executive Officer Elon Musk told investors that the Company was efficiently producing vehicles.
The weaker demand and production rates for Tesla prompted the Company to expand overseas. Moreover, Tesla has initiated plans to manufacture its vehicles in Europe and China. In particular, Tesla could see rampant growth China after its Shanghai factory is fully operation.
“The direct read on Panasonic/Tesla suspending plans for Gigafactory expansion is the partners probably do not see Tesla achieving projected sales volumes, and therefore necessary battery demand,” Craig Irwin, an analyst at Roth Capital Partners, said in a research note on Thursday. Irwin cut his price target on the name from USD 270 to USD 240 a share, according to Business Insider.
“We believe Tesla’s vehicle sales are slow because costs are simply too high for consumers,” he added.
Tesla shares have now fallen by 19.2% this year.