Tesla’s Stock Falls Due to Slow Demand for Electric Vehicles in China
Tesla’s shares are trading lower due to slow demand for electric vehicles in the crucial Chinese market. The decline is sparked by concerns that electric vehicles’ demand is decelerating, particularly in continental China, which significantly impacts companies heavily reliant on the Chinese market. According to Barclays Senior Autos analyst, Dan Levy, this year is about pivoting from supply constraints to demand constraints, which is affecting the EV market. The senior analyst believes that the slowdown in the first quarter of the year was partly related to Chinese New Year, and Tesla was likely impacted.
Below are key takeaways from Levy’s conversation with Brad Smith and Shauna Fererro of Cheddar:
Foreign Companies Facing Tough Competition From Homegrown Brands
Levy highlighted that a key theme in the automobile industry is the rise of competitive homegrown brands. In China, BYD and some other domestic automakers have figured out the cost dynamics challenging foreign brands like Tesla. However, Tesla has managed to maintain its high single to low double-digit market share in the Chinese automobile industry. This is still below where BYD is, as the latter has been performing well, roughly leading at a quarter of the market share. While Tesla has struggled to keep up with BYD, there is still room to scale volumes.
Further Price Cuts May be on the Horizon
Tesla’s pricing may experience more cuts in the first half of this year, especially in Asia. Dan Levy revealed that Barclays has already considered this factor in its model. However, the senior analyst also noted a pivot in Tesla’s approach to its pricing policy in the last six months, as opposed to last year. The company is now cautious about its pricing and being more sensitive to the margin line. Tesla learned from last year’s approach that significant price cuts don’t always stimulate the volume sales it intends to achieve.
Challenges Ahead for Tesla in 2021
Tesla is facing significant challenges ahead of it in the EV market this year. Levy predicts that there will be challenges in the company meeting some of the consensus delivery numbers. Reports indicate that the current refresh of the Model 3 has slowed down production, leading to inventory congestion. Tesla is also facing issues with Berlin’s production, delays related to Giga Texas, and potential Stellantis disruption on the U.S. east coast.
Tesla’s Shares Tumble to New Multi-Week Lows
Tesla’s stocks have fallen sharply over the past two days, spelling caution for the year ahead. However, Analysts anticipate that the situation may improve in the mid-year as demand resumes, and there is stabilization of production. Investors are closely watching the competition and how the automaker addresses the immediate challenges it faces to cushion itself from further dips in its stock. Rebranding and solidifying its brand name in the US market could be one of the solutions to address the issue of losing market share in China.
In conclusion, Chinese electric vehicle demand is slowing down, which is a giant blow to many prominent automakers operating in the region. Tesla is experiencing similar challenges in China’s market, which could significantly impact its delivery and production numbers for the year. It is incumbent upon Tesla to take necessary measures to solidify its brand name and regain lost market share before Chinese manufacturers such as BYD, and other homegrown brands outpace it.
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