Tesla Slips Lower on China Military Ban Report, Chip Shortage Concerns

Reports of a ban on vehicles on military bases in China, as well as intensifying competition in the world's biggest EV market, are capping Tesla gains Friday.
Author:
Updated:
Original:

Tesla  (TSLA) - Get Report shares pared earlier gains Friday after a report that suggested that officials in China will ban its vehicles from military bases and housing compounds in the clean-energy carmakers biggest market. 

Bloomberg reported that the ban, which was put into effect this week, is linked to concerns that potentially sensitive data from its onboard cameras could be collected and stored on Tesla servers. 

"Given Tesla's market share within China is increasing (as seen in the month of February) and EV demand is skyrocketing within this key region this move is not a complete shocker, although it clearly indicates 'big brother is watching' the situation closely," said Wedbush analyst Dan Ives, who held his $950 price target in place. "Tesla's massive Giga footprint remains a major strategic advantage vs. other EV players (domestic and foreign) as we believe Tesla has potential to be on a 300k run rate of demand in China by the second half of this year."

"We will watching this situation closely as China remains the linchpin to the bull case thesis around Tesla for the coming years with this latest news a "contained situation" in our opinion for now," he added.

The military ban follows 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 own domestic rival, NIO.  (NIO) - Get Report.

Earlier this month, Nio cautioned that electric car sales in the world's biggest market would slow over the first quarter following a wider-than-expected loss for the final three months of 2020.

Tesla sold 18,318 of its China-made cars in February, the China Passenger Car Association (CPCA) reported on March 8, up from 3,900 over the same period last year. Tesla's China sales were around a fifth of its overall total in 2020 - when it delivered a record 499,550 vehicles -- up from just 12% in 2019.

Tesla shares were marked 2% lower in the opening hours of trading Friday to change hands at 640.00 each. The stock has fallen nearly 30%, however, since reaching an intra-day record of $900.40 each on January 25.

Tesla shares, which have proven acutely sensitive to interest rate increases, given its longer-term path to profitability, may also soon be affected by the developing global shortage in semiconductor supplies, which has lead to the idling of plants for Ford  (F) - Get Report and cautious outlooks for carmakers such as Volkswagen and Toyota  (TM) - Get Report, according to Elazar Advisors analyst Chaim Siegel.

"Based on supply shortages I think we could be going into a rough patch for Tesla," Siegel said in a note published Friday. "First, deliveries could get pushed out even though demand is probably still strong. Second margins, specifically gross margins should have less upside given the supply shortages."  

"Supply shortages will probably ease when the COVID spread slows but for now global case counts have been on the rise again," he added. "This can push out timetables and visibility when we're back to normal to an efficient logistical flow."