Continued concerns about reports that Tesla Motors Inc (NASDAQ:TSLA) is cutting up to 180 jobs in China, as well as rumors of construction delays at its Nevada gigafactory, have caused Tesla stock to slide a few percentage points of late.
Tesla is denying that construction at its $5 billion gigafactory in Nevada has been delayed, and management has stated that work is on schedule. Original reports of the construction issues were released late last week; the Reno Gazette-Journal was the first to report the delay, citing changes with the plant’s design.
The other news hurting Tesla stock is Monday’s news that TSLA has cut about 30% of its work force in China. Tesla began operating in China in April 2014, and it has severely underperformed — since that point, Tesla has sold just 2,500 vehicles, or half the goal CEO Elon Musk set for the company.
The job cuts are an indication that the Chinese market is going to be a struggle for Tesla, though clearly TSLA isn’t leaving China, either. Some have stated that Tesla vehicle sales might have been weak because of a difference in Chinese and American housing. The mix of affluent Chinese citizens living in apartments is much higher than that percentage in America. For the Chinese, the issue of installing power chargers in parking garages or just around the country in general is a real concern.
Furthermore, the Chinese government doesn’t seem to be as concerned as American municipalities about changing laws to make it easier for companies to establish charging stations.
TSLA has dealt with production delay issues and weak sales numbers in the U.S. due to consumer concern over adequately located charging stations since the company began production years ago. But time and time again, TSLA has increased production, sold more cars and even paid for and placed charging stations throughout the country.
Tesla has dealt with this issue before — like in the U.S., TSLA should be able to overcome this hurdle. (Though it might need more time.)
And the factory? Investors shouldn’t even sweat this right now.
The gigafactory isn’t even scheduled to begin production until 2016, and Tesla doesn’t expect the factory to hit full capacity until 2020, when it plans to produce more than 500,000 batteries. Much like it’s too early to accurately price in the potential of such an innovative product some five years out, it’s also difficult to accurately factor a disputed delay in said factory into the price of Tesla stock.
Bottom Line
The layoffs in China are a setback and an indication to investors that sales figures probably won’t be met this year. But it’s not the end of the road for TSLA in China, just a roadblock. Investors need to look at the market opportunity and understand that, like the gigafactory, this is a long-term investment — but unlike the gigafactory, it’s a path we’ve seen play out positively once before.
Tesla stock is always going to be a bumpy ride. But those who hang on will be as rewarded as those lucky enough to actually slide into a Tesla’s driver’s seat.
As of this writing, Matt Thalman was long TSLA.
