Skip to main content

Tesla Shares Gain as Shanghai Factory Re-Opens Following Coronavirus Shutdown

Tesla opened its $2 billion Shanghai production facility Monday as China's factories slowing return to work following an extended coronavirus shutdown.

Tesla Inc.  (TSLA) - Get Free Report shares rebounded Monday after officials in China said they would support the carmaker as it re-open its $2 billion Shanghai gigafactory following a government-ordered break to combat the coronavirus.

Tesla had said the Shanghai closure would delay Model 3 deliveries in the world's largest car market, while also extending the ramp-up of production of its benchmark sedan, which it hopes will hit 150,000 per year when the newly-opened facility is running at peak capacity.

"In view of the practical difficulties key manufacturing firms including Tesla have faced in resuming production, we will coordinate to make all efforts to help companies resume production as soon as possible," a spokesman for the Shanghai municipal government said, in remarks reported by Reuters,  

Tesla shares were marked 1.55% higher in early trading Monday to changes hands at $757.52 each. 

Tesla's shares have seen unprecedented moves over the week, climbing to an all-time high of $968.98 per share last Tuesday, only the then shed more than 22% since then as analysts warn of high valuations and the potential hit to production target from China's coronavirus outbreak.

China is a key growth pillar for Tesla, however, and the spreading coronavirus, which has killed more than 900 people -- overtaking the total from the deadly SARS pandemic in 2003 -- and infected at least 40,000 others presents a significant challenge to the company's ambitious production and profit targets.

"Just as we observed a clear buy signal coming into 2020, we see the risk of China's coronavirus as a clear headwind to the Shanghai facility, suggesting a more pragmatic position," said Canaccord Genuity analyst Jed Dorsheimer, who lowered his rating on the stock to hold from buy last week but kept his price target unchanged at $750 per share.

"Given the 3,000 per week China Model 3 production expectations in a country that remains on lockdown, we feel a reset of expectations in Q1 is likely and thus needs to be reflected in the valuation."

Other global carmakers are also attempting to quantify the coronavirus impact, with Toyota Motor Co.  (TM) - Get Free Report cautioning last week that it would look "very closely at inventories of components which are made in China and used in other countries, including Japan, and at the possibility of alternative production" as the coronoavirus spread continues to shutter factories and facilities in the central industrial province of Huebi and the surrounding region.

Domestic rival Honda Motor Co., meanwhile, might keep plants located in Whuan, the epicenter of the outbreak, closed beyond a prior scheduled of February 13, according to reports from the Nikkei Business Daily. Last week, Hyuandi Motor Co. suspended production in South Korea owing to knock-on effects from supply chains in China.

General Motors Co.  (GM) - Get Free Report said it expects a "meaningfully lower equity income in China in the first quarter of 2020" as a result of the coronavirus outbreak, which has killed 563 people and infected at least 28,000 others,

"The coronavirus situation right now is very concerning. It's a very fluid situation, with updates that we're getting on a daily basis," said GM China president Matt Tsien. "

"In terms of the impact on sales, there will be I believe a near-term impact on the overall industry," he told investors on a conference call Wednesday following the carmaker's stronger-than-expected fourth quarter earnings. "Fundamentally, dealerships have been closed for the Lunar New Year. In some regions, they're slowly ramping back up. In many other regions, they still remain closed. So we expect that there will be an impact on volume in the near term."