Tesla halts production in Berlin due to Red Sea disruption

Tesla halts production in Berlin due to Red Sea disruption – BBC.com

  • By Jonathan Josephs and Faisal Islam
  • BBC News

January 12, 2024, 02:21 GMT

Updated 2 hours ago

Image source: Getty Images

Tesla is halting production at its only European electric car factory as attacks in the Red Sea disrupt deliveries.

The company said longer delivery times had created a gap in its supply chains as shipping companies avoided the route.

The British government fears another energy shock is possible if disruption to freight traffic spreads.

The electric car maker is believed to be the first company to reveal a problem with its supply chains after shipping companies were attacked by Houthi rebels.

“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 impacting production in Grünheide,” Tesla said in a statement to Portal.

The Berlin factory will be closed on January 29th and reopened on February 11th “with the exception of some sectors” due to a lack of components.

Houthi rebels in Yemen have stepped up attacks on commercial vessels since the war between Israel and Hamas began in October. According to the USA, there have been 27 attacks in the Red Sea since mid-November.

The Iran-backed group has used drones and missiles against foreign ships transporting goods through the Bab al-Mandab Strait – a 20-mile-wide canal that separates Eritrea and Djibouti on the African side and Yemen on the other Arabian Peninsula.

Ships usually take this important trade route from the south to reach Egypt's Suez Canal further north.

The Houthi group has declared support for Hamas and said it is targeting ships en route to Israel, although it is not clear whether all of the ships targeted were actually en route to Israel.

Many companies instead send ships around the Cape of Good Hope, a route that involves a journey of at least ten days.

Currently, about a quarter of the world's shipping containers are being diverted.

According to the White House, about 15% of global maritime trade passes through the Red Sea. This includes 8% of the world's grain, 12% of the world's marine oil and 8% of the world's liquefied natural gas.

The boss of shipping giant Maersk told the BBC that “significant disruptions” to global trade were already being felt “right through to the end consumer.”

Before Thursday's military strikes, Maersk boss Vincent Clerc had called for “stronger mobilization” to counter the attacks, which he said would lead to higher prices for customers.

Earlier this week, Tesco boss Ken Murphy warned that the disruption “could drive up the cost of some items, but we just don't know at the moment”.

Next, Ikea and Danone are also expecting delays in receiving goods.

Oil prices also rose on Thursday after Iran seized a tanker off the coast of Oman. The oil tanker was on its way to Turkey when armed men ordered it to enter an Iranian port.

On Friday, the price of Brent crude – the international benchmark for oil prices – rose 2% to $78.94 a barrel, while U.S. West Texas crude rose 2.1% to $73.55 .

The BBC understands that the Treasury has modeled scenarios including a rise in crude oil prices of more than $10 a barrel and a 25% rise in the price of natural gas.

The government fears ongoing attacks on shipping in the Red Sea could further shrink Britain's economy if the disruption continues to impact tanker traffic.

Yemen's Iran-backed Houthi rebels said the attacks were linked to the suffering of Palestinians in Gaza, and the group's leader, Abdel-Malek al-Houthi, said Thursday that they would “not back down.”

As a result of the attacks, Maersk and several other major shipping companies worldwide are avoiding a key route for global trade as they prioritize the safety of their crews.

“We have ships that are being shot at. We have colleagues whose lives are at risk when this happens and we simply cannot justify driving through these danger zones as the situation is at the moment,” said Mr Clerc.

He said the longer route around Africa drained short-term capacity from the global shipping system, added seven days to two weeks to ship journeys and cost $1 million (£783,000) more in fuel alone.

Tariffs for transporting goods by sea reached record highs during the pandemic but, along with shipping companies' profits, have fallen significantly over the past 18 months or so.

However, one reason the industry has spare capacity is because the higher cost of living in much of Europe and the US has led to a decline in consumer demand over the past two years.

“And so it has a real impact on people around the world in their daily lives.”