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 young entrepreneur boy catching money at his desk, indicating growth in the ASX share price or dividends
International Stock News

Why this high-flying investor is selling Tesla shares and buying this US tech stock instead

Ark Invest funds have been selling the electric vehicle maker's stock over the last few weeks and reinvesting the proceeds…

Read more »

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
International Stock News

Is Nvidia stock heading to $175?

The bulls are lining up ahead of Nvidia's earnings report next week.

Read more »

A woman holds a bitcoin token in her hand as she smiles at the camera in the background.
International Stock News

Bitcoin keeps soaring. Could it hit $95,000 this week?

Could the current crypto rally have enough juice to push the coin above that once-inconceivable level?

Read more »

A boy in a green shirt holds up his hands in front of a screen full of question marks.
International Stock News

2 reasons to buy Nvidia shares before November 20 (and 1 reason to wait)

This top AI stock has soared nearly 200% this year!

Read more »

A group of friends push their van up the road on an Australian road.
International Stock News

Why Tesla stock just pulled back

Tesla finally hit a speed bump after a blistering post-election rally.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
International Stock News

Why Tesla stock keeps going up

Tesla stock costs more than $1 trillion now. Is that too expensive?

Read more »

A businessman in soft-focus holds two fingers in the air in the foreground of the shot as he stands smiling in the background against a clear sky.
International Stock News

2 Numbers I'll be looking for on November 20 when Nvidia reports earnings

While many analysts and investors will be looking at revenue and profit growth, two other figures are more important to…

Read more »

A man wearing a blue jumper and a hat looks at his laptop with a distressed and fearful look on his face.
International Stock News

Magnificent Seven: Unstoppable tech stock giants or risky buys?

Did you know the "Magnificent Seven" moniker was meant as a warning, not an endorsement? Check out the risks and…

Read more »