Tesla Stock Struggles in China

by Warren Seah

Tesla has recently faced setbacks in the Chinese market, causing its stock to decline. While the S&P 500 and Nasdaq Composite experienced minimal fluctuations, Tesla shares dropped by 3.2% during late trading on Friday.

Decrease in Chinese Sales

According to data collected by Citi analyst Jeff Chung, Tesla’s weekly sales to Chinese car buyers experienced a drop. From June to August, the company sold approximately 13,000 electric vehicles (EVs) per week. However, in September, this number decreased to around 9,000 units.

This decline in retail deliveries may pose a challenge for Tesla, as it aims to meet the consensus estimate of 463,000 cars sold in the third quarter. Analysts tracked by FactSet had previously estimated a higher figure of about 473,000 cars. Consequently, failing to reach the projected 463,000 mark would result in deliveries falling below the second quarter’s achievement of 466,000 vehicles.

Production Limitations and Model Refresh Impact

In the third quarter, Tesla intentionally reduced production by implementing planned downtime in its factories. Additionally, the company introduced an updated version of its popular Model 3 sedan in China. However, this has led to a decrease in sales during the current month.

Between September 11 and September 17, Tesla sold only 240 Model 3 sedans in China, significantly below the typical figure ranging from 2,000 to 3,000 units per week. It is anticipated that this downward trend will reverse come October when the newer version of the sedan begins shipping.

Overall, these challenges in the Chinese market have contributed to Tesla’s recent struggles, impacting its stock performance.

Tesla Faces Challenges Ahead

Tesla, the renowned electric vehicle (EV) company, is anticipated to release its delivery report around October 2nd, followed by its earnings a few weeks later. Wall Street analysts predict a decrease in earnings per share for the third quarter. While the company earned 91 cents per share in the second quarter and $1.05 per share in the third quarter of 2022, the consensus estimate for this quarter is 79 cents.

However, Tesla’s profitability may be affected by price reductions and intensified competition in the Chinese market. Not only Tesla, but all Chinese EV manufacturers are grappling with the impact on profit margins.

Investors should brace themselves for potential volatility in trading leading up to the end of the quarter and after the delivery report. Recent patterns in Tesla’s stock performance have raised concerns among market analysts.

A notable technical analyst, Frank Cappelleri, founder of CappThesis, emphasizes the importance of closely observing Tesla’s stock chart. Cappelleri alerts investors to a potential break below a significant uptrend line, which has previously resulted in sharp downward movements three times in 2023.

Although Tesla experienced a sudden rise in stock prices from approximately $220 to $280, there is now the possibility of the shares dropping below $260. If this occurs, Cappelleri’s analysis suggests that the stock could potentially reach $240.

Cappelleri’s assessment is not solely based on Tesla’s business prospects but rather on an analysis of historical stock movements. By examining short- and medium-term trends, he aims to provide investors with an additional tool to navigate the volatility associated with Tesla’s stock.

In summary, Tesla is facing various challenges in the current market environment. The upcoming delivery report and earnings announcement are anticipated to shed light on the company’s performance. Investors should monitor Tesla’s stock closely for potential developments.

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