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Why Tesla resisted COVID-19 ultimatum to shutter California production

Henry Payne
The Detroit News

Tesla Inc. agreed to shut down production at its Fremont, California, facility by Monday after days of tension with local Alameda County authorities over whether its facility constituted an "essential business" under coronavirus shelter-in-place guidelines.

The automaker was in the middle of the launch of its Model Y electric crossover that one industry analyst deemed “mission critical.”

Tesla, which is in the middle of the launch of its Model Y electric crossover, resisted pressure to close its plant.

"We have decided to temporarily suspend production at our factory in Fremont, from end of day March 23, which will allow an orderly shutdown," Tesla said in a statement to investors.

The shutdown came a day after the EV pioneer pushed back on the county sheriff’s ultimatum in an email to its employees — first reported by Electrek.com — that it was "decreasing onsite personnel ... while honoring our government commitment to keep our national critical infrastructure running."

Tesla had defined “national critical infrastructure” as “business sectors crucial to the economic prosperity and continuity of the United States and includes auto manufacturing and energy infrastructure as defined by the Department of Homeland Security.”

Tesla’s reticence has been in contrast to Detroit-based automakers that have shut down their operations after concerns from United Auto Workers members and their leadership, including President Rory Gamble.

J.D. Power Vice President for Data and Analytics Tyson Jominy says that non-union start-up Tesla is under more pressure to produce because it has a thinner portfolio than traditional luxury automakers and because it usually makes its U.S. shipments at the end of each quarter.

“Model Y production is mission-critical to Tesla,” Jominy said. “They’re missing the bulk of the SUV market and the Model Y will greatly increase their market share. They are being watched more than anyone else by investors.”

He said Tesla’s revenue structure is also different than other carmakers since it sells directly to consumers. Where other companies book sales revenue to dealers as soon as cars leave the factory, Tesla operates its own dealerships and must deliver to customers to receive cash.

Tesla CEO Elon Musk has resisted the idea that the coronavirus is a crisis. Alameda County, population over 1.5 million, reported 35 cases of COVID-19 by Thursday.

In its note to investors, Tesla said basic operations at Fremont would continue after March 23 "in order to support our vehicle and energy service operations and charging infrastructure." Its Nevada battery gigafactory production is unaffected as is its national Supercharging network.

Henry Payne is auto critic for The Detroit News. Find him at hpayne@detroitnews.com or Twitter @HenryEPayne.