Why the Tesla share price stalled on Tuesday

Investors may be spooked by the prospect of a “production miss.”

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

What happened

Shares of electric-car maker Tesla (NASDAQ: TSLA) stalled out of the gate on Tuesday, after Barron's commented that analyst estimates for the company's Q2 production levels "look a little high." As of 10:10 a.m. ET, Tesla stock is down 2.5%. 

So what

If you recall, it's been a week since Tesla announced plans to resume full-speed production of electric vehicles (EVs) at its Shanghai gigafactory in China -- 2,600 cars per day, 949,000 cars per year, and a big boost toward the company's goal of building 1.5 million EVs this year. One week later, though, Bloomberg reports that the company is still only up to 70% of production capacity, or about 1,800 cars per day. 

However, it's important to factor in the loss of perhaps 100,000 cars worth of production already in Q1 and Q2 from COVID restrictions in China that impeded production, as well as slower-than-planned production ramps at Tesla's gigactories in Texas and Germany. When these factors are taken into account, Barron's calculates that Tesla might produce only 300,000 -- or even 260,000 -- electric vehicles this quarter. And that suggests that Tesla will fall far short of its 1.5 million-unit goal this year. 

Now what

This explains why some investors might feel inclined to sell Tesla today, before it gets a chance to confirm the "production miss." I think that's an overreaction and probably a mistake.

Consider this: Tesla probably won't produce 1.5 million cars this year (but it still might -- with Elon Musk, you never know). But you can hardly blame Tesla for missing a goal if it only misses because of COVID restrictions imposed by a sovereign government. Even if Tesla fails to produce 1.5 million cars this year, the fact that it's already ramping back up to full capacity in China means that it might produce 1.5 million EVs (or more) next year.

In short, investors shouldn't focus on the sales goal for any one year because of the quirks of health regulation in one single country -- but rather, on the trend of increasing, accelerating production levels at Tesla factories being built all around the world.

Long term, the trend for this stock's growth is still up. Don't get too frightened over one down day. 

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. 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. 

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