Tesla’s stock (TSLA) is dropping by as much as 7% – erasing billions of dollars in value today. It’s not clear why, but some are suggesting bad Chinese delivery numbers are to blame.
China is the world’s biggest auto market and by far the biggest EV market. If your sales are dropping in that market, you are in bad shape.
Tesla has heavily relied on the Chinese market for growth in recent years.
That’s probably why the stock dropped by as much as 7% today after the China Passenger Car Association reported that Tesla sold 60,365 China-made vehicles in February – down 19% year-over-year.
It led to a lot of headlines like this one:
However, the reason for the sales falling is as simple as the Chinese Lunar New Year slipping into February versus January last year. That leads to production shutdowns, closed stores, and fewer car sales.
So the year-over-year comparison is not valuable this year.
That said, there are reasons to be concerned about Tesla’s demand in China. Tesla has introduced price cuts and new incentives in the Chinese market to encourage sales.
That’s generally a sign that demand has been down, but Tesla has also been very quick to adjust prices in order to keep demand at the same level as its production capacity.
City Dwellers’s Take
It’s important to keep an eye on Tesla’s performance in China, but those February numbers are useless.
I’d be more concerned about Tesla’s price cuts. The automaker has impressive gross margins allowing it to reduce prices, but the latest price cuts are starting to put a lot of pressure on Tesla’s financials.
With Tesla’s latest entry into the advertising world, it will be interesting to see if Tesla decides to utilize that in China instead of further price cuts.
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