Tesla’s (NASDAQ:TSLA) bad week continues today as its share price falls 3% on media reports that the electric vehicle maker is planning to cut production in China as demand slows.
Adding to the negative news are additional reports that Tesla is planning to cut prices on its vehicles sold in China. The production and price cuts have led Boston-based private wealth manager Bernstein to lower the price target on TSLA stock. All the negative news has sent Tesla’s share price down 8% so far this week. The stock closed yesterday (Dec. 6) at $179.82, down 55% on the year.
In an effort to counter the spate of negative publicity, Tesla has announced plans to begin selling electric vehicles in Thailand. Yet that news does not seem to be helping the company’s stock, which continues to sink.
What Happened
Tesla is offering a limited-time discount of 6,000 yuan ($859.20) to Chinese buyers on some of its electric vehicles through the end of this year. This is the second discount offered by Tesla, which previously announced a 4,000 yuan insurance subsidy to Chinese consumers who buy one of its cars by the end of December. Tesla has now cut the price of its Model 3 and Model Y electric vehicles by 9% in China.
The discounts helped to boost Tesla’s deliveries of China-made electric vehicles in November to 100,291 units, up 40% from October and the highest monthly sales ever in the nation of 1.4 billion people. But now, there are reports that demand has faltered in China, which has been beset with renewed Covid-19 lockdowns, and, as a result, Tesla is planning to curtail its production in the Asian nation.
The softening demand and price discounts have led Bernstein to reiterate its “underperform” rating on TSLA stock with a $150 price target. That target is 17% below where the company’s shares are currently trading. Bernstein also said that Tesla CEO Elon Musk’s acquisition of social media company Twitter at the end of October has clouded the outlook for the electric vehicle maker.
Why It Matters
The negative news is further depressing TSLA stock and eroding confidence in the Austin, Texas-based electric vehicle maker and its prospects. China remains a strategically important market for Tesla given that the company’s largest manufacturing plant is based outside of Shanghai and the enormous size of the country’s consumer base.
Tesla’s announcement that it now plans to sell its vehicles in the new market of Thailand is an obvious attempt at diversification and to give the impression that the company is lessening its reliance on China. However, with a population of less than 70 million people, Thailand is much smaller than China and Tesla needs to offer discounts and incentives in Thailand to establish a foothold in that market.
What’s Next for TSLA Stock
TSLA stock continues to slump today on a spate of negative news. Investors seem to be disregarding the company’s expansion into Thailand and instead are focused on worsening demand in China, as well as price and production cuts. While painful in the near term, the continued drop in Tesla’s share price could set up a nice buying opportunity for investors with a long time horizon. Watch for an eventual bottom in TSLA stock and consider taking a position in the world’s biggest electric vehicle maker.
On the date of publication, Joel Baglole 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.
