Why Tesla shares dropped Wednesday

There could be trouble brewing for Tesla in China.

| More on:
Tesla car driving on road

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's (NASDAQ: TSLA) factory in Shanghai, China is its most productive plant. It has been upgraded to have an annual production capacity of about 1.1 million units. So it's not a surprise to see investors moving the stock lower when there are clouds on the horizon in China. As of 1 p.m. ET, Tesla shares were near the day's lows, down 2.6%. 

So what

That is likely because of another resurgence of COVID-19 cases and restrictions in China. Tesla generates approximately one-fourth of its sales from its China plant. So when news surfaced that Chinese electric vehicle maker Nio has temporarily suspended operations at two of its plants due to local virus-related restrictions, some investors are betting it will also impact Tesla.  

Now what

Today, Reuters reported that Nio has halted its production due to efforts to stem the virus' spread. The company confirmed that deliveries and production have both been affected. Nio's facilities are in Hefei, approximately 300 miles from Shanghai. But production at Tesla's Shanghai plant was already interrupted earlier this year from COVID-19 lockdowns in China. And Tesla's suppliers could also be impacted by lockdowns. 

Tesla doesn't provide monthly sales data, but Nio missed expectations for deliveries in October partly due to the COVID-19-related impacts. And Reuters has also reported that Walt Disney's Shanghai theme park resort has closed with visitors being required to test negative for the virus to exit. 

Tesla's Shanghai plant is an important one for the company. Until its new German factory ramps up to full capacity, the China plant has also been supplying European customers. So it makes sense for investors to be concerned if production at the Shanghai factory is limited. That helps explain today's stock drop, but investors should know that the company's long-term potential won't likely be affected by these short-term issues.     

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

Howard Smith has positions in Nio Inc., Tesla, and Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nio Inc., Tesla, and Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool Australia has recommended Walt Disney. 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 »