Tesla shares on Tuesday dropped below the $200 level for the first time since December 2016. The technology company’s stock closed at $195.25, representing a 7.5% single-day tumble and a 41% decrease in value since the start of the year.
Despite the fact that the company has raised $2.5 billion in fresh capital for various projects, the decreasing stock value points to a lack of investor confidence in Tesla because of a variety of reasons, including intensifying trade rifts between China and United States as the company prepares to open a car production facility in Shanghai.
The troubles for Tesla do not end there. After a drastic drop in car sales for the first quarter of 2019, Tesla chief Elon Musk has called for a review of all the company’s expenses. In addition, a car crash involving a driverless Tesla vehicle has raised alarm bells about the safety of auto-piloted vehicles, a feature which gave Tesla competitive advantages over rivals.
Yahoo Finance reported that Tesla delivered just 63,000 cars in the first quarter of 2019, but expects to deliver 90,000 to 100,000 cars in the second quarter, and 360,000 to 400,000 for the year. If Tesla plans to turn a profit for the second half of the year, it will have to depend on sales in the Chinese market, an analyst at Morgan Stanley has told investors.
Tesla Goes To China
A drone video of a new Tesla manufacturing and production facility in Shanghai shows that the building of the new factory seems to be almost complete, and the company could start rolling out electric vehicles from the place by the end of the year if a production line can be set up in time, according to Electrek.
The publication further reports that the Tesla facility—the Gigafactory 3—has been set up in record time, as the deal for the foreign-owned local factory was struck only seven months ago. The land for the project was secured five months ago and construction only began at the turn of the year.
Electrek also claims that Tesla had earlier devised plans to build a manufacturing plant inside two years with the capacity to produce 200,000 units, with possible expansion to 500,000 units in five years. Musk has also said recently that Tesla wants to produce 3,000 Model 3 vehicles at Gigafactory 3 in Shanghai by the end of 2019.
Dan Ives, an analyst at financial services firm Wedbush assesses that if Tesla is unable to earn profit in the second half of the year, the company may need to raise another $1 billion to $2 billion of capital quickly.
For Tesla, China may be the key to staying relevant.
Can China Rescue Tesla?
A Morgan Stanley assessment of the Tesla situation reiterates that the ambitious sales targets of the company depend on the opening of the new production facility in Shanghai before the end of 2019.
If successful in production, Musk faces another herculean task – selling cars. The Chinese electric vehicle market is big, diverse and competitive. In 2018, sales of electric vehicles in China topped 1.1 million cars, more than 55% of all electric vehicles sold in the world. U.S. electric vehicle sales that year were just 358,000.
But a forecast of slowing sales of electric cars in China has put doubts over the ability of Tesla to build a market share in the Asian country. In addition, third-party reports of individual electric car sales in China seem to show that Tesla has sold less than 3000 Model 3 vehicles in China over the past month.
However, China also manufactures more than half of all electric car batteries in the world. With Tesla potentially staring down an electric car battery shortage, a facility in China, which controls global supply chains critical to the manufacture of batteries, could give Tesla an edge over other western rivals.
According to Ives, Tesla is venturing into insurance, robotaxis, and other projects of a futuristic nature which could end up wasting the precious time and energy of company employees. In fact, the financial analyst goes as far as to classify the present troubles of Tesla as code red.
It remains to be seen whether Musk and Co. can successfully negotiate the markets, politics and the technological hurdles standing in the way of their electric vehicles. But one thing seems for sure though, Tesla will need to sell thousands of more cars this year if it wants to stop a further decrease in its stock value.