Why Tesla stock tumbled again on Tuesday

In the race to own China's EV market, NIO, XPeng, and Li Auto are catching up.

| More on:
girl holding out a Chinese flag through a window

Image source: Getty Images

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

Shares of electric car leader Tesla (NASDAQ: TSLA) are losing some steam Tuesday, falling as much as 5% in early trading and still down about 2.2% as we approach the noonday mark (EDT).

What's ailing Tesla today? A couple of things, actually -- but both of them are named "China."

So what

As Barron's reports this morning, Tesla sold fewer than 26,000 electric vehicles in China in April, a 26% sequential slide from the 35,000 units moved in March. Local competition appears to be the problem there, with the news magazine reporting that in aggregate, rival EV companies NIO (NYSE: NIO), XPeng (NYSE: XPEV), and Li Auto (NASDAQ: LI) grew their Chinese EV sales by about 1,000 units.

That could be a problem for Tesla, which is believed to be counting on China to provide 40% of its sales in 2022. If growth is slowing there, it could impact Tesla's entire growth rate worldwide. And adding credibility to worries that it might be a problem, Reuters reported this morning that Tesla has suspended plans to buy additional land adjacent to its Shanghai manufacturing plant. Granted, the existing plant is designed to produce far more cars than Tesla is already selling in China -- about 500,000 units annually. But the suspension does call into question hopes that Teslas might be selling so well in China that the company would need to expand operations to keep up with demand.

That no longer seems to be the case.

Now what

So is this a death knell for Tesla stock? I wouldn't go quite that far just yet, and it's even possible that investors are overreacting to today's news out of China. To understand why, just do a bit of math with me: Tesla sold nearly 26,000 Teslas in China in April, right? Multiply that by 12 months, and you only get to 312,000 units or so -- meaning that a plant designed to build 500,000 units is still plenty big to meet existing demand, and even growing demand, for Teslas in China.

What's more, defying media reports, Tesla insists that its operations in China are actually still "developing as planned," while experts suggest that even without buying more land, Tesla's existing plant could be expanded to produce more than 500,000 cars a year should the company so desire.

Long story short, this latest sales report out of China looks more like a yellow flag than a red flag to me.

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

Rich Smith has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends NIO Inc. and 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 Bruce Jackson.

More on International Stock News

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

If you invested $10,000 in Nvidia stock the day ChatGPT came out, this is how much you'd have today

Buying Nvidia when the disruptive AI chatbot launched would have been a smart move.

Read more »

A Tesla car driving along a road at sunset
International Stock News

Why Tesla stock was climbing today

Investors were encouraged by news of a price hike on the Model Y.

Read more »

Plate with coloured wedges being parcelled out like a slice of pie representing a share split
International Stock News

Stock-split watch: Is Nvidia next?

Nvidia last split its stock when it traded for a pre-split $744 in 2021.

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

1 Wall Street analyst thinks Tesla stock is going to $125. Is it a sell?

Tesla is no longer a magnificent stock, according to a Wells Fargo analyst.

Read more »

A young man goes over his finances and investment portfolio at home.
International Stock News

Is Nvidia stock a buy?

The company's stock could rise 40% over the next two years and outperform the S&P 500.

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Is Nvidia headed for a stock split?

Nvidia stock has split five previous times in the company's history.

Read more »

Digital rocket on a laptop.
International Stock News

Nvidia shares surged (again) today. Is it too late to buy the red-hot artificial intelligence (AI) growth stock?

Nvidia stock has gained nearly 300% over the past year. Can investors still profit from this AI stock?

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

Can you buy Nvidia shares on the ASX?

This stock has rocketed higher. How do we get access to it?

Read more »