Investor's Corner

Tesla shares (TSLA) recover despite China’s new import tariffs

After showing recovery on Tuesday, Tesla shares (NASDAQ:TSLA) tumbled during pre-market trading on Wednesday amid China’s imposition of new tariffs over US-made products, including electric vehicles like Tesla. Before the opening bell on Tuesday, $TSLA shares were trading down 5.38% at $253.13. The company’s stocks began rebounding later during the day, however, bouncing back from its pre-market dive, up 1.55% and trading at $271.82 per share as of writing.

China’s announcement of its tariffs on US goods comes on the heels of the Trump’s administration’s plans to impose duties on $50 billion worth of Chinese products, including industrial, transport, and medical materials. According to a Reuters report, China Foreign Ministry spokesman Geng Shuang claimed that China had been open to resolving the trade dispute through negotiations, but the US had not been responsive so far.

“The best opportunities for resolving the issues through dialogue and negotiations have been repeatedly missed by the U.S. side,” Shuang said.

It only took China 11 hours to respond to Washington’s tariffs in kind, releasing a list of duties on key American imports. Among these are US-made products such as Tesla’s electric cars, Ford’s vehicles from its Lincoln brand, General Dynamics Corp’s Gulfstream jets, and Brown-Forman Corp’s Jack Daniels’ whiskey.

While the two countries’ tariffs on crucial imports appear alarming, Julian Evans-Pritchard, senior China economist at Capital Economics, said that it would not be surprising if negotiations between America and China would happen soon. According to the economist, it is worth noting that only announcements of the tariffs have been made so far. Neither country has called for enforcement of the duties yet.

“The assumption was China would not respond too aggressively and avoid escalating tensions. China’s response is a surprise for some people. It’s more of a game of brinkmanship, making it clear what the cost would be, in the hopes that both sides can come to agreement and none of these tariffs will come into force,” Evans-Pritchard said.

China’s tariffs, if ever they do get enforced, would likely affect Tesla’s operations in the country. Tesla, after all, is currently in intense competition with local electric car makers in China. As we noted in a previous report, Elon Musk brought up the issue of import taxes that American cars face on the country. Tesla is also engaged in negotiation with officials from Shanghai for the construction of a facility speculated to be the Model Y’s future factory.

J.P. Morgan analyst Ryan Brinkman reiterated his Underweight rating on Tesla’s stocks, citing the ongoing production difficulties that the company is facing with the Model 3. Brinkman also lowered his estimates and stock price target to $185 from $190. RBC Capital analyst Joseph Spak kept his Neutral rating on $TSLA, though he dropped his stock price target from $380 to $305, according to a MarketWatch report.

While Tesla’s shares took a dive during pre-market trading, IHS Markit Managing Director for Asia Pacific James Chao noted in a statement to Bloomberg that Tesla’s woes are relatively minor. Chao further stated the current challenges that Tesla’s shares are facing are manageable, especially since Elon Musk seems to work best when he is driven into a corner.

“(Elon Musk) is really at the edge here. I think this is the environment that works best in, under a lot of pressure. With the tweet on April Fools, you can see that he thrives in the moment. I think that you can see that he is performing, to a certain extent, 2,020 vehicles in the last week of April, was far beyond what analysts, in general, were looking for.

“The overall story just for Tesla is still intact, which is, while large automakers produce vehicles in every single segment of the market, including segments of the market where they can’t make money; Tesla focuses on one segment — this electric vehicle market — which is highly valued. And I think that story still continues despite short-term cycles.”

As we noted in a previous report, Tesla’s first quarter production and delivery report listed a 40% increase in production from Q4 2017. Tesla was also able to manufacture 2,020 Model 3 during the last week of March. Delivery figures were also strong, with the company delivering 29,980 vehicles in total during the first three months of the year. Among this number, 8.180 were Model 3. 

Tesla shares (TSLA) recover despite China’s new import tariffs

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