Tesla Motors Inc Faces HUGE Hong Kong Threat – TSLA Stock

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Tesla Motors Inc (TSLA) is a pricey stock whose valuation is tied almost entirely to its ambitious plans to make electric vehicles mass-produced, reliable, sexy and affordable.

tesla stock motors tsla stockOf course, it isn’t just ambition alone that earns Tesla its $29 billion market cap and TSLA stock a 100-plus forward P/E ratio. The market is betting Tesla will be able to execute well and actually achieve its goals.

One of Tesla’s shorter-term goals is to expand more aggressively into Asia, where an expanding middle class and increasingly urban demographic have created densely populated centers of potential customers.

Judging by how it’s been going so far, TSLA stock owners might want to temper their excitement, especially after the company was forced to disable its autopilot update in Hong Kong yesterday due to improper clearance with regulators.

Is Tesla Stock Overvaluing Asia?

While TSLA is aiming for sales in China to exceed its U.S. sales by 2021, that’s nowhere close to being realized. In the first nine months of 2015, TSLA sold 5,252 cars in China, while in the last quarter alone it shipped 11,580 cars in the U.S.

That’s a far cry from the 1,500 cars per month senior analyst Karl Brauer with Kelley Blue Book estimated Tesla would need to sell in China to meet its 2015 sales goals.

It’s no secret that the China expansion isn’t going quite to plan; TSLA’s decision to cut 30% of its Chinese workforce back in March telegraphed that pretty clearly to the market.

Then, yesterday, Hong Kong regulators forced Tesla’s hand, as the company had to disable its most recent software update — which gave cars autonomous driving features like auto-steering and auto-lane changing. The government said that drivers using the features could be subjected to fines.

Apparently Telsa stock executives had not gained the proper approvals to roll-out such a feature, and the government had even warned the company on Oct. 30 about its failure to do so.

This snafu raises several important questions for TSLA stock holders. First, why did Tesla roll out the update in Hong Kong if it was forewarned about it needing regulatory approvals first?

A report in the South China Morning Post quotes a Tesla spokeswoman as saying the update was EU compliant and that European traffic laws were identical to Hong Kong traffic laws. It sounds like a simple misunderstanding.

Telsa Driving Through Confusing Regulations

What’s more concerning though, is the realization that operating internationally makes Tesla stock subject to all sorts of obscure foreign rules and regulations. The power of the Chinese government in particular is concerning, and China’s stubborn tendency to give companies within its borders a leg up on foreign competitors is a major issue.

Alibaba (BABA), for instance, has been able to build (allegedly) a retail empire largely through merchants who sell counterfeit versions of popular Nike (NKE) and Michael Kors (KORS) products, to name just a few.

Counterfeit cars are a bit more difficult, but with weak intellectual property protections, a government that can subsidize Chinese companies on a whim to compete with foreign rivals, and Tesla’s early struggles in the region, perhaps investors should think twice about that sky-high TSLA multiple.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/tesla-motors-inc-tsla-stock-hong-kong/.

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