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While Tesla (TSLA) stock has fallen sharply over the last week, shares are still up 230% over the past six months. At the same time, the sales of Tesla’s vehicles in China are falling.
Tesla Inc (NASDAQ: TSLA) stock dove over 12% on Thursday after it was announced that its car registrations in China almost halved in January compared with December 2019.
“Citing state-backed China Automotive Information Net, which gathers industry data based on insurance purchases, Bloomberg reported Thursday that 3,563 Tesla cars were registered in China last month, down from 6,643 in December.”
That’s despite Tesla producing more than 2,600 cars at Gigafactory Shanghai in January and not only relying on importing vehicles from the U.S.
The electric carmaker said it will also discontinue its joint effort with Panasonic Corporation (TYO: 6752) to produce solar panels after the Japanese firm decided to withdraw from the partnership to “streamline the company’s global solar energy operations.”
On Tuesday, Tesla (TSLA) stock was also downgraded by Jefferies from “buy” to “hold,” while lifting the price target from $600 to $800.
At 5:29 am ET, TSLA was down 3.98% to $652, lowest in February.
Coronavirus Crisis Came at a Bad Time for Tesla in China
But let’s go back to China a bit, shall we? China is for sure an important market for the automotive industry, especially for electric vehicles. It has been Tesla’s second-biggest market and the company expected significant growth there in 2020 due to now having local production after completing its Gigafactory Shanghai last year.
And it’s not just that. We shouldn’t forget that the country is an important player when it comes to automotive parts suppliers for the industry as a whole. For now, Tesla hasn’t been mentioning any issues related to supply even though some other companies did.
Still, the coronavirus crisis is coming at an exceptionally bad time for Tesla in China. After investing hundreds of millions into the factory, they are going through a health crisis that is affecting the entire market. If the crisis in China continues, Tesla could find itself in a position where it cannot generate as much cash flow as needed from its Chinese assets.
Cowen analyst Jeffrey Osborne said:
“The Tesla Shanghai Gigafactory was expected to be the growth engine prior to the coronavirus outbreak. Now with factory shutdowns and consumers cautious on spending as recent car registration data suggests, there is heightened investor concern around broader auto demand trends in China.”
Tesla (TSLA) Stock Is Still 180% Up from October
And of course, there are critics for whom yesterday’s fall came as a welcome dose of sanity for a stock driven by “hype” as they call it.
Mark Spiegel, a longtime Tesla critic and short-seller said:
“Tesla’s stock has been completely decoupled from any iota of reality since the $300s in December. It’s difficult to assign a specific rational cause to the deflation of a bubble, as it wasn’t rationality that inflated it in the first place – it was mania.”
We still think that we should look upon overall results and can clearly see that the company’s stock is still more than 180% up since its rally began in late October.
And also, let’s not forget that most of it lays in the investors’ sentiment. Highflying stocks such as Tesla or, for example, Virgin Galactic Holdings Inc (NYSE: SPCE) for that matter, are truly getting hammered in the coronavirus-related stock market selloff.
However, we shouldn’t look at it as a sign of investors giving up on stocks with high valuations. The worst-performing stocks are dealing badly with the situation the same as the big names.
There are a lot of oil and travel stocks, that went through much worse falls. Those sectors have been hit more by virus fears. This means, that the recent selloff is mostly based on fear. Investors are taking a sell first, ask questions later approach. It seems bad now, but it will be good for stocks when coronavirus fears finally loose.