“It was the night before Christmas and
was closing its factory in Shanghai…”
Reuters and other outlets reported it
(ticker: TSLA) suspended production at its Shanghai plant on Saturday, with the suspension lasting about a week.
Battered investors will squirm about the latest headlines surrounding the EV maker, but they should rest easy tonight and resist the urge to overreact to another scary number.
Tesla shares have lost 55% of their value in the past three months. Two issues weighed heavily on the stock: CEO Elon Musk’s handling of social media platform Twitter after he took it private, which hurt investor sentiment, and widespread anxiety over weakening demand for electric vehicles.
Demonstrating the Musk effect, Tesla stock greatly underperformed
and other automotive titles recently. The Nasdaq is down about 3% in the past three months, while
(GM) shares are down about 5%.
It’s worth noting that EV makers’ shares aren’t doing too well either.
(FSR) shares have slipped about 35% on average over the past three months.
Tesla didn’t say why the production shutdown was happening, Reuters reported, and the company didn’t respond by Barron request for comment. The request was sent on Saturday, but Tesla PR did not respond to aa by Barron request for comment this year.
We have an idea why the plant went down: Auto plants typically take breaks during the holidays. Some GM plants will be closed next week, e.g
(F) also takes vacations.
GM and Ford did not respond to a request for comment about their vacation plans. But it is very common for automakers to shut down production in the summer and during holidays so that hourly workers can have free time. Mass holidays make production planning very easy.
Tesla, of course, isn’t just an auto company — it has a fast-growing tech stock watched by many bullish analysts.
(GOOGL) doesn’t shut down Google Search in the last week of the year, so software engineers can take a breather.
Plus, Tesla is getting bigger: The company is currently capable of producing about two million vehicles a year. And the battery electric penetration of Chinese auto sales will end the year with more than 20% of all new car sales. The days of Tesla Shanghai running at maximum capacity no matter what happens in the Chinese economy are probably over.
It wouldn’t be wise to ignore the shutdown story entirely, but at worst it’s just confirmation of what investors already know. Wait times for new Tesla vehicles are decreasing, and Wall Street is cutting fourth-quarter delivery data. The Street now expects about 420,000 units to be sold in the fourth quarter, down from about 440,000 a few weeks ago.
The figure of 420,000 would still be a record and quite an achievement, given the Covid problems in China. Sales in the U.S. also fell as auto buyers wait for tax credits for the purchase of EVs to take effect on Jan. 1.
Investors should take comfort in the fact that China’s reopening on the back of its zero-Covid policy and new tax credits should help boost demand for EVs in 2023, after a shaky 2022 shutdown. Optimists can point out that the December close is a reflection of what has already happened.
There aren’t many optimists in the world of auto investing these days. All is not going well for Tesla or the auto industry, as the stock charts show.
It would be great if Tesla officials commented on production plans and inventory levels, or even what happened at several Tesla facilities in previous years. More real-time communications from Tesla would be a true Christmas miracle.
Email Al Root at email@example.com