Tesla Inc. (TSLA) - Get Report shares slipped lower Monday amid lingering concerns over the pace of car sales in China and a move by founder and CEO Elon Musk to pull the plug on the higher-end version of its Model S Plaid sedan.
Musk said the Plaid+, which was marketed with a driving range of 520 miles, is now unnecessary given that the Model S Plaid is "just so good". It will be unveiled at a media event on June 10.
Meanwhile, a report from the Information last week indicated that May orders for Tesla vehicles in China, the world's biggest car market, fell 45% from April to just under 10,000. China's passenger car association will publish official figures on Friday.
Wedbush analyst Dan Ives, however, notes that only about 5% of car sales in China are EVs, and he expects a doubling of deliveries over the next two years, with Tesla, as well as domestic rivals such as Nio NIO, being the main beneficiaries.
"We believe this year Tesla with a strong 2H can near 900,000 annual deliveries and track towards 1.3 million in 2022 with the Cybertruck adding to the overall EV demand story," Ives said in a client note that maintained an 'outperform' rating with a $1,000 price target. "In a nutshell, competition is increasing from all angles in this EV arms race which has been an overhang over Tesla and the overall sector, however this is just the start of an EV transformation that will change the auto industry for the coming decades with Tesla leading the charge."
Tesla shares were marked 2.2% lower in early trading Monday to change hands at $586.60 each, a move that would peg the stock's year-to-date decline at around 17%.
China is a crucial market for Tesla, accounting for just over a third of the 184,800 new cars the group delivered over the three months ending in March, a record total that included the production of 180,338 Model 3s and Model Ys.
The China Passenger Car Association (CPCA) showed the first-quarter tally of 69,280 units sold in the world's largest car market following the launch of its Shanghai gigafactory in 2019. The April tally was pegged at 25,845, CPCA said last month.
Tesla, for its part, has attempted to defend its place in the China market by establishing data centers that will store information generated from cars sold in the country a move that follows the carmaker's renewed engagement with authorities in Beijing amid a broader crackdown on technology companies and the collection of customer data.
Bloomberg reported last month that officials in China banned Tesla vehicles from military bases and housing compounds amid concerns concerns that potentially sensitive data from its onboard cameras could be collected and stored on Tesla servers.
The military ban also came amid a Reuters report that one of Tesla's main China-based rivals, Geely, is preparing to unveil a range of newly-branded EV's that could challenge the Palo Alto, California-based group's dominance in the high-end market.
Geely, which owns a majority stake in Volvo and a near 10% piece of Germany's Daimler AG (DDAIY) , has long maintained an ambition to build EVs at a premium price-point, much like its domestic rival Nio.
"The main line in the sand now for the bulls and bears is not the near-term chip shortage in our opinion (which is temporary), but rather Tesla's ability to further penetrate China," Ives said. "With China a linchpin to Tesla's global success and its Giga footprint a key advantage, the latest back and forth between Beijing and Tesla have clearly negatively impacted demand for Tesla in China for now."
"Now its about Musk playing nice in the sandbox and making sure that Tesla does not see any further stumbles in China which is poised to represent 40%+ of global deliveries by 2022," he added.