Why Tesla stock tanked today

Worries about demand destruction were stoked by the EV specialist's latest pricing move.

| More on:
A Tesla electric vehicle beingt charged

Image source: Tesla

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Tesla (NASDAQ: TSLA) shares plunged as much as 7.4% Monday morning, dropping to their lowest level in almost 18 months. The move stemmed from two related reasons. As of the market close, the stock had recovered some ground, but was still down 1.49%.

So what

The main cause of today's pessimism likely came from a pricing move reported by The Wall Street Journal. Tesla is dropping the price of its Model 3 and Model Y vehicles for Chinese customers. That's not the only news impacting Tesla shares today, but the other item is also about China. 

Investors are concerned the price cut could mean the company is seeing waning demand in the important Chinese market. It comes just as Chinese President Xi Jinping secured a third term and stacked his government with loyalists that are considered less friendly to private companies.

Now what

Chinese tech stocks also dropped sharply today because investors fear policies including lockdowns to control the spread of COVID-19 and tighter regulations on businesses could hurt economic growth in the country. But Tesla investors likely focused more on the pricing move, especially on the heels of comments made by CEO Elon Musk last week. 

Musk said during the EV maker's third-quarter earnings conference call that China is experiencing "a recession of sorts" related mostly to the property markets. After the company just dropped prices there by 5% and 9% for the Model 3 and Model Y, respectively, investors are wondering if that critical market might actually be faring worse than Musk indicated. 

The new prices will have the Model Y selling for under the equivalent of $40,000 and the Model 3 for about $36,600 to Chinese consumers. It's a real concern for investors if the company is lowering prices due to slowing demand. Tesla's plant in Shanghai was recently upgraded and produced a record 83,135 EVs in September. Declining raw material costs could also be what spurred the price drop. Commodity prices have dipped from peak levels recently, and investors might have nothing to worry about if lower costs are the reason. But combined with the concerns about potential future government policies, Tesla stock took a dive.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Howard Smith has positions in Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A man looking at his laptop and thinking.
International Stock News

Why Alphabet stock was sliding today

Let's take a look.

Read more »

A man looking at his laptop and thinking.
International Stock News

Nvidia's stock was down despite its amazing earnings. Here's what history says is coming next

Although it might seem to defy logic, it's not an uncommon phenomenon.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Nvidia share price slips despite 94% revenue growth

Q3 earnings beat expectations, but what about guidance?

Read more »

high, climbing, record high
International Stock News

Could the S&P 500 Index hit 6,500 by the end of 2025?

Could the index climb higher?

Read more »

a small child holds his chin with his head on the side in a serious thinking pose against a background of graphic question marks and a yellow lightbulb.
International Stock News

Is it too late to buy Nvidia shares?

Is Nvidia stock a buy ahead of its third-quarter earnings report tomorrow?

Read more »

a group of people stand examining a large glowing cystral ball held in the hands of one of the group members while the others regard it with various expressions of wonder, curiousity and scepticism.
International Stock News

Here's what to expect from Nvidia on November 20

Can Nvidia score another win?

Read more »

Two people lazing in deck chairs on a beautiful sandy beach through their hands up in the air.
International Stock News

2 no-brainer Warren Buffett stocks to buy right now

While replicating Buffett's success isn't possible, there are a handful of his investments that are no-brainer buys.

Read more »

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

3 reasons to buy Nvidia stock before November 20

This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be…

Read more »