Tesla plans to step up output at its Shanghai gigafactory over the next two months to meet demand ignited by aggressive price cuts on its best-selling models, Reuters reported.

The automaker plans to produce a weekly average of nearly 20,000 units at its Shanghai factory in February and March, according to a planning memo seen by Reuters.

The production ramp-up comes after Tesla's recent sales surge. Thanks to price cuts in early January, the EV giant’s average daily retail sales in China rose 36% year-on-year to 25,686 vehicles in the first 29 days of January. 

The slash was its second price cut in less than three months. After the latest price cuts, the starting price of the Model 3 fell to 229,900 yuan ($33,618.97) from 265,900 yuan, and the starting price of the Model Y dropped from 259,900 yuan to 288,900 yuan ($42,246.10). Earlier, in October, Tesla lowered the prices of its entire Model 3 and Model Y lineup in China.

Prior to the further price cuts, the Shanghai factory had faced rising inventories. According to data from China Merchants Bank International (CMBI), in October, the company produced 87,706 Model 3s and Model Ys in Shanghai but delivered 71,704, leaving an inventory gap of 16,002. That was the biggest gap between production and sales since Tesla opened its Shanghai factory in late 2019, CMBI data showed.

To cope with the rising inventory, therefore, in December, the Shanghai plant cut output by about a third from November and extended a Chinese New Year holiday period for workers.

After Tesla boosted demand by further reducing vehicle prices in China, some of its Chinese rivals, including Nio, Li Auto and Xpeng Motors, saw declines in sales, Teslarati said. Nio delivered 8,506 vehicles in January, down 46.2% from December 2022 and down 11.9% from January 2022. Li Auto delivered 15,141 vehicles last month, a decrease of 28.7% from the previous month and a decrease of 23.4% from January 2022. Xpeng Motors saw the biggest decline, with sales down 53.8% month-on-month and 59.6% year-on-year.