Why Tesla shares dropped on Monday

Elon Musk said Tesla’s Shanghai plant is “coming back with a vengeance,” but there are new questions.

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Elon Musk speaking at a Chinese event.

Image source: Tesla

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

What happened

Tesla (NASDAQ: TSLA) shares are starting the week on a slide. It comes as new concerns arise related to production in Shanghai as well as distractions for CEO Elon Musk. The stock dropped 3% in early trading Monday, but those losses eased as the session progressed. As of 12:15 p.m. ET, Tesla shares were down 0.8% for the day.

So what

Two news items are driving the negative sentiment this morning. Some investors likely worry about how distracted Musk is becoming now that reports have surfaced that his bid to take over social media site Twitter may be closer to becoming reality.

More importantly, though, are concerns that Tesla's Shanghai manufacturing facility could see renewed impacts from Chinese lockdowns being implemented to address the spread of the coronavirus.

Now what

Investors got a lift from Tesla's first-quarter earnings announcement last week when it reported $3.3 billion in net income. But impacts from production delays at its Giga Shanghai factory were mainly going to hit the company in the second quarter. Production was suspended at the end of March due to lockdowns imposed to stem a new surge of COVID-19.

Musk eased some concerns about the impacts on Tesla even for the second quarter when he stated in the earnings conference call, "Tesla Shanghai -- Giga Shanghai is coming back with a vengeance." But reports of extended lockdowns in Shanghai, and potentially new lockdowns in Beijing, have investors worried once again.

The Wall Street Journal reports Chinese leaders have implemented a new round of COVID-19 testing in Beijing, as Shanghai's lockdown enters its fifth week. Investors are selling today because they know if Shanghai lockdowns aren't eased, and new ones are implemented in Beijing, it is likely that manufacturers, including Tesla, will continue to be impacted.

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

Howard Smith has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Tesla and Twitter. 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.

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