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Tesla’s expansion plans with higher manufacturing outcomes by the end of 2020 are currently in the doldrums as China’s automobile industry witnessed a 92% drop in sales due to the coronavirus outbreak. TSLA stock started falling.
The coronavirus outbreak has massively impacted China’s automobile industry as manufacturing has taken a backseat. Wuhan city also called the Detroit of China, has been at the heart of this virus epidemic. But will coronavirus seriously affect such giants as Tesla Inc. (NASDAQ: TSLA)?
China is one of the largest automobile consuming markets in the world. Besides, many global players have their manufacturing units established in China due to the country’s economic incentives. However, the virus outbreak has massively impacted the country’s already slowing car industry and things turn topsy turvy.
Just in the first two weeks of February 2020, the car sales in China have dried up by a whopping 92%, reports Bloomberg. Also, in the first week itself, the nationwide car sales plunged over 96% to an average daily of 811 units as per the report by the China Passenger Car Association. This was the time when the majority of the car dealers had to shut down their showrooms due to the mounting fears of virus spread.
“There was barely anybody at car dealers in the first week of February as most people stayed at home,” said PCA Secretary General Cui Dongshu.
However, Cui also added that things have started to gradually improve from the second week. Furthermore, they could be even better by the end of this month. Moreover, China’s commerce ministry has ensured a talk with the government to stabilize the auto sales. It will also work on introducing some cognitive measures to reduce the impact of this epidemic on the automobile demand.
What Does Coronavirus Mean for Tesla and TSLA Stock?
American electric car maker Tesla has been having a wild run on Wall Street since the start of 2020. With strong Q4 2019 results, Tesla has emerged as the darling of investors in no time.
The Tesla (TSLA) stock has surged over 100% year-to-date making it the second-largest global automobile company after Toyota. On Friday’s closing, amid coronavirus Tesla (TSLA) stock was trading at a price of $901 per share with market valuations of $165 billion. At the press time, at the pre-market, TSLA is $864, which indicates a 4% drop.
On the contrary, Tesla has been looking to expand its manufacturing prowess across the globe. During the start of 2020, Tesla started production at its Shanghai gigafactory. Moreover, with strong Q2 2019 numbers, the company also projected 500,000 thousand vehicle deliveries across all Tesla models in 2020.
Tesla’s CEO Elon Musk has been betting heavily on Shanghai’s manufacturing facility to meet this milestone. Speaking of the company’s plans, he said:
“We need to bring the Shanghai factory online. I think that’s the biggest variable for getting to 500,000-plus a year. Our car is just very expensive going into China. We’ve got import duties, we’ve got transport costs, we’ve got higher costs of labor here”.
However, with the coronavirus outbreak, even Tesla had to shut down production at its Shanghai factory earlier this month. The good thing is that the Shanghai municipal government has extended its cooperation and assured to bring things back to normal.
But the current scenario doesn’t look promising with the rising cases of coronavirus in and outside China. If things continue the same way, there is a possible likelihood that Tesla couldn’t attain its desired outcome by the year-end. This could also negatively impact the stock price going further.
Moreover, Europe is facing a similar situation with the rising cased in coronavirus. This could also but breaks to Tesla’s plan of expanding in Europe after the latest $2.31 billion stock offering.