For investors in high-flying Tesla (NASDAQ:TSLA), it’s been another rough session today. To start the year, TSLA stock has already given up more than 10% of its valuation, with today’s decline of more than 3.5% contributing to this larger move.
Today’s downside appears to be tied to yesterday’s reports that Tesla’s Berlin factory will be halting car production. The production halt will take place over a two-week period, from Jan. 29 to Feb. 11. Production issues appear to be tied to supply chain disruptions in the Red Sea, with ongoing attacks from Houthi militants on ships forcing the re-routing of shipping routes, forcing many goods to take longer to arrive to port.
While other EV companies have reported they may also see production impacts, this announcement certainly does not bode well for Tesla and its growth ambitions. Let’s dive further into what this means for investors.
TSLA Stock Sinks on Production Halt Announcement
Most investors are well aware that armed conflicts in the Red Sea have already forced disruptions. But seeing one of the world’s largest EV companies have its production delayed as a result of these supply chain issues is worrying.
On the one hand, there are company-specific concerns to be taken into account for Tesla investors. This is an extremely highly-valued EV stock, with its valuation based on some rather incredible growth projections spanning many years. If production is halted for even a short time, the bottlenecks that could form could drive lower numbers for several quarters. Ultimately, the impact of these delays is still being priced into TSLA stock, but it’s clearly a very negative development for shareholders.
On the other hand, these supply chain disruptions may spark investor concern more broadly. To a large extent, much of the inflation seen during the pandemic was tied to supply chain disruptions. Thus, the nightmare of higher inflation may not necessarily be over if we see a repeat of the sort of pandemic-driven uncertainty repeat.
Overall, the market appears to be taking a very cautious approach to stocks to kick off today. I think the ongoing geopolitical issues in the Red Sea may become more prevalent and important for investors to watch moving forward. For Tesla investors, these issues are already becoming a problem for the stock.
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.
