- A new report shows that Tesla (NASDAQ:TSLA) has to delay ramping up production at its Shanghai plant
- This comes as the city of Shanghai has been under Covid-19 lockdown for seven weeks
- Investors are likely now worried Tesla will not be able to meet its Q2 production estimates
One of today’s biggest large-cap movers is Tesla (NASDAQ:TSLA). In this down market, electric vehicle makers such as Tesla have been among the worst performers. Accordingly, today’s decline of 5% in TSLA stock may come as no surprise to many investors.
After all, we’re in a market that’s currently under a tremendous amount of pressure. Investors everywhere are de-risking their portfolios, starting with companies holding the highest valuation multiples.
That said, there are a number of bullish factors supporting TSLA stock. Unlike many auto makers, Tesla hasn’t been as negatively impacted by the chip shortage. Given the supply chain constraints investors are pricing into most stocks, this is a big bonus.
However, there is one supply chain-related catalyst that is negatively impacting Tesla today. Let’s dive into what investors are pricing in right now.
TSLA Stock Drops on Chinese Lockdown Concerns
One of the more interesting aspects of Tesla’s business model is the company’s foreign growth engine. Chinese production of the company’s electric vehicles has boosted Tesla’s revenue and earnings in recent years. The company’s Shanghai gigafactory is, in many respects, one of the bright spots of the company’s global growth model.
However, Chinese lockdowns, particularly in Shanghai, have some investors concerned. That’s because a slowing of production in China is likely to bleed into the company’s results in the coming quarters. Today, news arose that Tesla has delayed its plan to ramp up production at its Shanghai facility. Accordingly, investors appear to be pricing in less-favorable growth forecasts for the near term.
How long these lockdowns persist remains to be seen. However, with China’s harsh stance on Covid-19, investors may be taking the view that these lower levels of production could be persistent. Right now, it appears consensus is building that Tesla may not meet its Q2 targets. Beyond that, it’s a speculator’s game.
Personally, I have been critical of Tesla’s valuation multiple for a long time. This company is an auto manufacturer. However, the stock is valued much like an enterprise software company. In this market, I think valuation multiples will realign appropriately. Today, it appears the market has found an excuse to move in this direction.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
